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ACC 422 Final Exam Guide (New 2018, With EXCEL
FILE, Score 29 30)
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This Tutorial contains excel File which can be used to solve for any
change in values Brief Exercise 7-1 Brief Exercise 7-7 Brief Exercise 7-
14 Brief Exercise 7-15 Brief Exercise 8-4 (Part Level Submission) Brief
Exercise 8-5 Brief Exercise 8-6 Multiple Choice Question 21 Question
14 Brief Exercise 9-4 Exercise 9-4 Brief Exercise 10-6 Brief Exercise
10-8 Exercise 10-1 Question 9 Brief Exercise 11-8 Brief Exercise 12-2
Brief Exercise 12-8 Exercise 12-3 Brief Exercise 13-2 Brief Exercise
13-5 Brief Exercise 13-10 Brief Exercise 13-13 Brief Exercise 14-3
Brief Exercise 14-12 Brief Exercise 14-14 Brief Exercise 21-11 Exercise
21-1 Multiple Choice Question 99 Multiple Choice Question 70 Brief
Exercise 7-1 Your answer is correct. Vaughn Enterprises owns the
following assets at December 31, 2017. Cash in bank—savings account
69,000 Checking account balance 17,600 Cash on hand 9,030
Postdated checks 770 Cash refund due from IRS 35,600
Certificates of deposit (180-day) 94,570 What amount should be
reported as cash? Brief Exercise 7-7 Larkspur Family Importers sold
goods to Tung Decorators for $40,800 on November 1, 2017, accepting
Tung’s $40,800, 6-month, 6% note. Prepare Larkspur’s November 1
entry, December 31 annual adjusting entry, and May 1 entry for the
collection of the note and interest. Brief Exercise 7-14 Recent financial
statements of General Mills, Inc. report net sales of $12,442,000,000.
Accounts receivable are $912,000,000 at the beginning of the year and

$953,000,000 at the end of the year. Brief Exercise 7-15 Indigo
Company designated Jill Holland as petty cash custodian and established
a petty cash fund of $290. The fund is reimbursed when the cash in the
fund is at $26, which it is. Petty cash receipts indicate funds were
disbursed for office supplies $92 and miscellaneous expense $169.
Prepare journal entries for the establishment of the fund and the
reimbursement. Brief Exercise 8-4 (Part Level Submission) Pharoah
Company uses a periodic inventory system. For April, when the
company sold 500 units, the following information is available. Units
Unit Cost Total Cost April 1 inventory 290 $32 $ 9,280
April 15 purchase 430 38 16,340 April 23 purchase
280 42 11,760 1,000 $37,380 Brief Exercise 8-6 Your
answer is correct. Sandhill Company uses a periodic inventory system.
For April, when the company sold 600 units, the following information
is available. Units Unit Cost Total Cost April 1 inventory 270
$30 $ 8,100 April 15 purchase 440 36 15,840 April 23
purchase 290 39 11,310 1,000 $35,250 Compute the
April 30 inventory and the April cost of goods sold using the LIFO
method. Multiple Choice Question 21 Which of the following
inventories carried by a manufacturer is similar to the merchandise
inventory of a retailer? Question 14 A fire destroys all of the
merchandise of Shamrock Company on February 10, 2017. Presented
below is information compiled up to the date of the fire. Inventory,
January 1, 2017 $432,200 Sales revenue to February 10, 2017
1,935,200 Purchases to February 10, 2017 1,104,580 Freight-in
to February 10, 2017 59,180 Rate of gross profit on selling price
35% What is the approximate inventory on February 10, 2017?
Exercise 9-4 Martinez Company began operations in 2017 and
determined its ending inventory at cost and at LCNRV at December 31,
2017, and December 31, 2018. This information is presented below.

Cost Net Realizable Value 12/31/17 $322,170 $299,520 12/31/18
409,250 390,440 (a) Prepare the journal entries required at
December 31, 2017, and December 31, 2018, assuming inventory is
recorded at LCNRV and a perpetual inventory system using the cost-of-
goods-sold method. Brief Exercise 10-6 Waterway Inc. purchased land,
building, and equipment from Laguna Corporation for a cash payment of
$327,600. The estimated fair values of the assets are land $62,400,
building $228,800, and equipment $83,200. At what amounts should
each of the three assets be recorded? Brief Exercise 10-8 Pearl
Corporation traded a used truck (cost $29,600, accumulated depreciation
$26,640) for a small computer with a fair value of $4,884. Pearl also
paid $740 in the transaction. Prepare the journal entry to record the
exchange. (The exchange has commercial substance.) Exercise 10-1 The
expenditures and receipts below are related to land, land improvements,
and buildings acquired for use in a business enterprise. The receipts are
enclosed in parentheses. (a) Money borrowed to pay building contractor
(signed a note) $(285,400 ) (b) Payment for construction from note
proceeds 285,400 (c) Cost of land fill and clearing 11,790
(d) Delinquent real estate taxes on property assumed by
purchaser 7,300 (e) Premium on 6-month insurance policy
during construction 8,580 (f) Refund of 1-month insurance
premium because construction completed early (1,430 ) (g)
Architect’s fee on building 26,200 (h) Cost of real estate
purchased as a plant site (land $209,100 and building $52,900)
262,000 (i) Commission fee paid to real estate agency 8,970
(j) Installation of fences around property 3,770 (k) Cost
of razing and removing building 11,710 (l) Proceeds from
salvage of demolished building (4,550 ) (m) Interest paid during
construction on money borrowed for construction 13,150 (n) Cost
of parking lots and driveways 20,050 (o) Cost of trees and

shrubbery planted (permanent in nature) 14,440 (p) Excavation
costs for new building2,700 Identify each item by letter and list the
items in columnar form, using the headings shown below. All receipt
amounts should be reported in parentheses. For any amounts entered in
the Other Accounts column, also indicate the account title. Question 9
Sage Company purchased machinery for $174,300 on January 1, 2017. It
is estimated that the machinery will have a useful life of 20 years,
salvage value of $14,700, production of 81,900 units, and working hours
of 44,000. During 2017, the company uses the machinery for 11,440
hours, and the machinery produces 9,009 units. Compute depreciation
under the straight-line, units-of-output, working hours, sum-of-the-
years’-digits, and double-declining-balance methods. Brief Exercise 11-
8 Carla Company owns equipment that cost $1,008,000 and has
accumulated depreciation of $425,600. The expected future net cash
flows from the use of the asset are expected to be $560,000. The fair
value of the equipment is $448,000. Prepare the journal entry, if any, to
record the impairment loss. Brief Exercise 12-8 Concord Corporation
purchased Johnson Company 3 years ago and at that time recorded
goodwill of $330,000. The Johnson Division’s net assets, including the
goodwill, have a carrying amount of $700,000. The fair value of the
division is estimated to be $668,000 and the implied goodwill is
$298,000. Prepare Concord journal entry to record impairment of the
goodwill. Exercise 12-3 Joni Marin Inc. has the following amounts
reported in its general ledger at the end of the current year. Organization
costs $24,400 Trademarks 16,900 Discount on bonds payable37,400
Deposits with advertising agency for ads to promote goodwill of
company 12,400 Excess of cost over fair value of net identifiable assets
of acquired subsidiary77,400 Cost of equipment acquired for research
and development projects; the equipment has an alternative future use
87,400 Costs of developing a secret formula for a product that is

expected to be marketed for at least 20 years 83,800 (a) On the
basis of this information, compute the total amount to be reported by
Marin for intangible assets on its balance sheet at year-end. Brief
Exercise 13-2 Ivanhoe Company borrowed $30,000 on November 1,
2017, by signing a $30,000, 8%, 3-month note. Prepare Ivanhoe’s
November 1, 2017, entry; the December 31, 2017, annual adjusting
entry; and the February 1, 2018, entry. Brief Exercise 13-5 Riverbed
Corporation made credit sales of $19,800 which are subject to 7% sales
tax. The corporation also made cash sales which totaled $28,462
including the 7% sales tax. Prepare the entry to record Riverbed’s credit
sales. Brief Exercise 13-10 Windsor Inc. is involved in a lawsuit at
December 31, 2017. Prepare the December 31 entry assuming it is
probable that Windsor will be liable for $862,200 as a result of this suit.
Brief Exercise 13-13 Martinez Factory provides a 2-year warranty with
one of its products which was first sold in 2017. Martinez sold $930,400
of products subject to the warranty. Martinez expects $124,050 of
warranty costs over the next 2 years. In that year, Martinez spent
$70,460 servicing warranty claims. Prepare Martinez’s journal entry to
record the sales (ignore cost of goods sold) and the December 31
adjusting entry, assuming the expenditures are inventory costs. Brief
Exercise 14-3 The Skysong Company issued $260,000 of 10% bonds on
January 1, 2017. The bonds are due January 1, 2022, with interest
payable each July 1 and January 1. The bonds were issued at 98. Prepare
the journal entries for (a) January 1, (b) July 1, and (c) December 31.
Assume The Skysong Company records straight-line amortization
semiannually. Brief Exercise 14-12 Vaughn Corporation issued a 4-year,
$55,000, 5% note to Greenbush Company on January 1, 2017, and
received a computer that normally sells for $44,762. The note requires
annual interest payments each December 31. The market rate of interest
for a note of similar risk is 11%. Prepare Vaughn’s journal entries for (a)

the January 1 issuance and (b) the December 31 interest. Multiple
Choice Question 99 On June 30, 2018, Sheridan Co. sold equipment to
an unaffiliated company for $2250000. The equipment had a book value
of $1205000 and a remaining useful life of 10 years. That same day,
Sheridan leased back the equipment at $12500 per month for 5 years
with no option to renew the lease or repurchase the equipment.
Sheridan’s rent expense for this equipment for the year ended December
31, 2018, should be
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ACC 422 Final Exam Guide 1
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1. Kraft Enterprises owns the following assets at December 31, 2012.
Cash in bank–savings account 67,516 Checking account balance
26,445 Cash on hand 9,478 Postdated checks 753 Cash
refund due from IRS 40,324 Certificates of deposit (180-day)
94,754 What amount should be reported as cash? Question 2 Presented
below is information related to Rembrandt Inc.’s inventory. (per unit)
Skis Boots Parkas Historical Cost
273.79 152.75 76.37 Selling Price
312.70 208.95 106.27 Cost to distribute
27.38 11.53 3.60 Current replacement cost
292.52 151.31 73.49 Normal profit margin
46.11 41.79 30.62 Determine the following: Question

3 Matlock Company uses a perpetual inventory system. Its beginning
inventory consists of 67 units that cost $40 each. During June, the
company purchased 202 units at $40 each, returned 8 units for credit,
and sold 168 units at $67 each. Journalize the June transactions.
Question 4 Amsterdam Company uses a periodic inventory system. For
April, when the company sold 700 units, the following information is
available. Compute the April 30 inventory and the April cost of goods
sold using the average cost method. Question 5 Amsterdam Company
uses a periodic inventory system. For April, when the company sold 600
units, the following information is available. Compute the April 30
inventory and the April cost of goods sold using the FIFO method.
Question 6 (FIFO, LIFO, Average Cost Inventory) Esplanade Company
was formed on December 1, 2011. The following information is
available from Esplanade’s inventory records for Product BAP.
Purchases Units Unit Cost
January 1, 2012(beginning inventory) 762 8.00 January
5, 2012 1,524 9.00 January 25,
2012 1,651 10.00 February 16, 2012
1,061 11.00 March 26, 2012 762
12.00 A physical inventory on March 31, 2012, shows 2,032 units on
hand. Prepare schedules to compute the ending inventory at March 31,
2012, under each of the following inventory methods. Assume
Esplanade Company uses the periodic inventory method. Question 7
Floyd Corporation has the following four items in its ending inventory.
Determine the final lower of cost or market inventory value for each
item. Question 8 Kumar Inc. uses a perpetual inventory system. At
January 1, 2013, inventory was $320,786 at both cost and market value.
At December 31, 2013, the inventory was $428,714 at cost and $403,231
at market value. Prepare the necessary December 31 entry under:
Question 9 Boyne Inc. had beginning inventory of $15,000 at cost and

$25,000 at retail. Net purchases were $150,000 at cost and $212,500 at
retail. Net markups were $12,500; net markdowns were $8,750; and
sales were $196,250. Compute ending inventory at cost using the
conventional retail method. Question 10 (Gross Profit Method) Astaire
Company uses the gross profit method to estimate inventory for monthly
reporting purposes. Presented below is information for the month of
May. Question 11 Previn Brothers Inc. purchased land at a price of
$30,400. Closing costs were $1,820. An old building was removed at a
cost of $14,850. What amount should be recorded as the cost of the
land? Question 12 Garcia Corporation purchased a truck by issuing an
$108,000, 4-year, zero-interest-bearing note to Equinox Inc. The market
rate of interest for obligations of this nature is 10%. Prepare the journal
entry to record the purchase of this truck. Question 13 Mohave Inc.
purchased land, building, and equipment from Laguna Corporation for a
cash payment of $352,800. The estimated fair values of the assets are
land $67,200, building $246,400, and equipment $89,600. At what
amounts should each of the three assets be recorded? Question 14
Fielder Company obtained land by issuing 2,000 shares of its $12 par
value common stock. The land was recently appraised at $103,700. The
common stock is actively traded at $50 per share. Prepare the journal
entry to record the acquisition of the land. Question 15 Navajo
Corporation traded a used truck (cost $23,600, accumulated depreciation
$21,240) for a small computer worth $4,366. Navajo also paid $1,180 in
the transaction. Prepare the journal entry to record the exchange.
Question 16 Mehta Company traded a used welding machine (cost
$10,080, accumulated depreciation $3,360) for office equipment with an
estimated fair value of $5,600. Mehta also paid $3,360 cash in the
transaction. Prepare the journal entry to record the exchange. Question
17 Depreciation is normally computed on the basis of the nearest A). full
month and to the nearest dollar. B). day and to the nearest cent. C). day

and to the nearest dollar. D). full month and to the nearest cent.
Question 18 Fernandez Corporation purchased a truck at the beginning
of 2012 for $54,180. The truck is estimated to have a salvage value of
$2,580 and a useful life of 206,400 miles. It was driven 29,670 miles in
2012 and 39,990 miles in 2013. Compute depreciation expense for 2012
and 2013. Question 19 Lockhard Company purchased machinery on
January 1, 2012, for $79,200. The machinery is estimated to have a
salvage value of $7,920 after a useful life of 8 years. (a) Compute 2012
depreciation expense using the double-declining balance method. (b)
Compute 2012 depreciation expense using the double-declining balance
method assuming the machinery was purchased on October 1, 2012.
Question 20 Jurassic Company owns machinery that cost $1,145,700
and has accumulated depreciation of $458,280. The expected future net
cash flows from the use of the asset are expected to be $636,500. The
fair value of the equipment is $509,200. Prepare the journal entry, if any,
to record the impairment loss. Question 21 Everly Corporation acquires
a coal mine at a cost of $501,600. Intangible development costs total
$125,400. After extraction has occurred, Everly must restore the
property (estimated fair value of the obligation is $100,320), after which
it can be sold for $200,640. Everly estimates that 5,016 tons of coal can
be extracted. If 878 tons are extracted the first year, prepare the journal
entry to record depletion. Question 22 Francis Corporation purchased
an asset at a cost of $58,200 on March 1, 2012. The asset has a useful
life of 8 years and a salvage value of $5,820. For tax purposes, the
MACRS class life is 5 years. Compute tax depreciation for each year
2012–2017. Question 23 Celine Dion Corporation purchases a patent
from Salmon Company on January 1, 2012, for $50,820. The patent has
a remaining legal life of 16 years. Celine Dion feels the patent will be
useful for 10 years. Prepare Celine Dion’s journal entries to record the
purchase of the patent and 2012 amortization. Question 24 Karen

Austin Corporation has capitalized software costs of $768,500, and sales
of this product the first year totaled $390,630. Karen Austin anticipates
earning $911,470 in additional future revenues from this product, which
is estimated to have an economic life of 4 years. Compute the amount of
software cost amortization for the first year. (a) Compute the amount of
software cost amortization for the first year using the percent of revenue
approach. (b) Compute the amount of software cost amortization for the
first year using the straight-line approach. Question 25 Jeff Beck is a
farmer who owns land which borders on the right-of-way of the
Northern Railroad. On August 10, 2012, due to the admitted negligence
of the Railroad, hay on the farm was set on fire and burned. Beck had
had a dispute with the Railroad for several years concerning the
ownership of a small parcel of land. The representative of the Railroad
has offered to assign any rights which the Railroad may have in the land
to Beck in exchange for a release of his right to reimbursement for the
loss he has sustained from the fire. Beck appears inclined to accept the
Railroad’s offer. The Railroad’s 2012 financial statements should
include the following related to the incident: A). recognition of a loss
only. B). creation of a liability only. C). disclosure in note form only. D).
recognition of a loss and creation of a liability for the value of the land.
Question 26 Roley Corporation uses a periodic inventory system and the
gross method of accounting for purchase discounts. On July 1, Roley
purchased $66,000 of inventory, terms 2/10, n/30, FOB shipping point.
Roley paid freight costs of $1,210. On July 3, Roley returned damaged
goods and received credit of $6,600. On July 10, Roley paid for the
goods. Prepare all necessary journal entries for Roley. Question 27
Takemoto Corporation borrowed $93,000 on November 1, 2012, by
signing a $95,093, 3-month, zero-interest-bearing note. Prepare
Takemoto’s November 1, 2012, entry; the December 31, 2012, annual
adjusting entry; and the February 1, 2013, entry. (For multiple

debit/credit en tries, list amounts from largest to smallest, e.g. 10, 8, 6.
Round all answers to 0 decimal places, e.g. 11,150.) Question 28
Whiteside Corporation issues $629,000 of 9% bonds, due in 14 years,
with interest payable semiannually. At the time of issue, the annual
market rate for such bonds is 10%. Compute the issue price of the
bonds.(Use the present value tables in the text. Question 29 Indiana
Jones Company enters into a 6-year lease of equipment on January 1,
2012, which requires 6 annual payments of $37,560 each, beginning
January 1, 2012. In addition, the lessee guarantees a residual value of
$20,870 at lease-end. The equipment has a useful life of 6 years. Assume
that for Lost Ark Company, the lessor, collectibility is reasonably
predictable, there are no important uncertainties concerning costs, and
the carrying amount of the machinery is $191,722. Prepare Lost Ark’s
January 1, 2012, journal entries. Question 30 On January 1, 2012, Irwin
Animation sold a truck to Peete Finance for $26,050 and immediately
leased it back. The truck was carried on Irwin’s books at $20,800. The
term of the lease is 5 years, and title transfers to Irwin at lease-end. The
lease requires five equal rental payments of $7,048 at the end of each
year. The appropriate rate of interest is 11%, and the truck has a useful
life of 5 years with no salvage value. Prepare Irwin’s 2012 journal
entries.
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SET 2 1) Which of the following is considered cash? 2) Bank overdrafts,
if material, should be 3) Which of the following is NOT considered cash
for financial reporting purposes? 4) If a company employs the gross
method of recording accounts receivable from customers, then sales
discounts taken should be reported as 5) Which of the following
methods of determining annual bad debt expense best achieves the
matching concept? 6) The advantage of relating a company's bad debt
expense to its outstanding accounts receivable is that this approach 7)
The failure to record a purchase of mer¬chandise on account even
though the goods are properly included in the physical inven¬tory
results in 8) Belle Co. received merchandise on consignment. As of
March 31, Belle had recorded the transaction as a purchase and included
the goods in inventory. The effect of this on its financial statements for
March 31 9) Eller Co. received merchandise on consignment. As of
January 31, Eller included the goods in inventory, but did NOT record
the transaction. The effect of this on its financial statements for January
31 10) The use of a Purchase Discounts account implies that the
recorded cost of a purchased inventory item is its 11) Which method of
inventory pricing best approximates specific identification of the actual
flow of costs and units in most manufacturing situations? 12) When
using the periodic inventory system, which of the following generally
would NOT be separately accounted for in the computation of cost of
goods sold? 13) An item of inventory purchased this period for $15.00
has been incorrectly written down to its current replacement cost of
$10.00. It sells during the following period for $30.00, its normal selling
price, with disposal costs of $3.00 and normal profit of $12.00. Which of
the following statements is NOT true? 14) Designated market value 15)
In no case can "market" in the lower-of-cost-or-market rule be more than

16) A major advantage of the retail inventory method is that it 17) The
gross profit method of inventory valuation is invalid when 18) The retail
inventory method is based on the assumption that the 19) Which of the
following is NOT a major characteristic of a plant asset? 20) Cotton
Hotel Corporation recently purchased Holiday Hotel and the land on
which it is located with the plan to tear down the Holiday Hotel and
build a new luxury hotel on the site. The cost of the Holiday Hotel
should be 21) If a corporation purchases a lot and building and
subsequently tears down the building and uses the property as a parking
lot, the proper accounting treatment of the cost of the building would
depend on 22) The period of time during which interest must be
capitalized ends when 23) To be consistent with the historical cost
principle, overhead costs incurred by an enterprise constructing its own
building should be 24) When computing the amount of interest cost to
be capitalized, the concept of "avoidable interest" refers to 25) The
King-Kong Corporation exchanges one plant asset for a similar plant
asset and gives cash in the exchange. The exchange is NOT expected to
cause a material change in the future cash flows for either entity. If a
gain on the disposal of the old asset is indicated, the gain will 26) When
funds are borrowed to pay for construction of assets that qualify for
capitalization of interest, the excess funds NOT needed to pay for
construction may be temporarily invested in interest-bearing securities.
Interest earned on these temporary investments should be 27) Which of
the following is NOT a condition that must be satisfied before interest
capitalization can begin on a qualifying asset? 28) Which of the
following most accurately reflects the concept of depreciation as used in
accounting? 29) Which of the following principles best describes the
conceptual rationale for the methods of matching depreciation expense
with revenues? 30) The major difference between the service life of an
asset and its physical life is that 31) Starr Company purchased a

depreciable asset for $150,000. The estimated salvage value is $10,000,
and the estimated useful life is 8 years. The double-declining balance
method will be used for depreciation. What is the depreciation expense
for the second year on this asset? 32) Bigbie Company purchased a
and the estimated useful life is 10,000 hours. Bigbie used the asset for
1,100 hours in the current year. The activity method will be used for
depreciation. What is the depreciation expense on this asset? 33)
Harrison Company purchased a depreciable asset for $100,000. The
estimated salvage value is $10,000, and the estimated useful life is 10
years. The straight-line method will be used for depreciation. What is the
depreciation base of this asset? 34) Costs incurred internally to create
intangibles are 35) The cost of purchasing patent rights for a product that
might otherwise have seriously competed with one of the purchaser's
patented products should be 36) Riser Corporation was granted a patent
on a product on January 1, 1998. To protect its patent, the corporation
purchased on January 1, 2007 a patent on a competing product which
was originally issued on January 10, 2003. Because of its unique plant,
Riser Corporation does NOT feel the competing patent can be used in
producing a product. The cost of the competing patent should be 37)
Twilight Corporation acquired End-of-the-World Products on January 1,
2008 for $2,000,000, and recorded goodwill of $375,000 as a result of
that purchase. At December 31, 2008, the End-of-the-World Products
Division had a fair value of $1,700,000. The net identifiable assets of the
Division (excluding goodwill) had a fair value of $1,450,000 at that
time. What amount of loss on impairment of goodwill should Twilight
record in 2008? 38) Fleming Corporation acquired Out-of-Sight
Products on January 1, 2008 for $4,000,000, and recorded goodwill of
$750,000 as a result of that purchase. At December 31, 2008, the Out-of-
Sight Products Division had a fair value of $3,400,000. The net

identifiable assets of the Division (excluding goodwill) had a fair value
of $2,900,000 at that time. What amount of loss on impairment of
goodwill should Fleming record in 2008? 39) Malrom Manufacturing
Company acquired a patent on a manufacturing process on January 1,
2006 for $10,000,000. It was expected to have a 10 year life and no
residual value. Malrom uses straight-line amortization for patents. On
December 31, 2007, the expected future cash flows expected from the
patent were expected to be $800,000 per year for the next eight years.
The present value of these cash flows, discounted at Malrom’s market
interest rate, is $4,800,000. At what amount should the patent be carried
on the December 31, 2007 balance sheet? 40) Goodwill 41) Easton
Company and Lofton Company were combined in a purchase
transaction. Easton was able to acquire Lofton at a bargain price. The
sum of the market or appraised values of identifiable assets acquired less
the fair value of liabilities assumed exceeded the cost to Easton. After
revaluing noncurrent assets to zero, there was still some "negative
goodwill." Proper accounting treatment by Easton is to report the
amount as 42) The reason goodwill is sometimes referred to as a master
valuation account is because 43) Which of the following items is a
current liability? 44) Which of the following statements is false? 45)
Stock dividends distributable should be classified on the 46) Simson
Company has 35 employees who work 8-hour days and are paid hourly.
On January 1, 2006 the company began a program of granting its
employees 10 days of paid vacation each year. Vacation days earned in
2006 may first be taken on January 1, 2007. Information relative to these
employees is as follows: Year Hourly Wages Vacation Days Earned by
Each Employee Vacation Dayse Used by Each Employee 2006 $28.50
10 0 2007 $27.00 10 8 2008 $28.50 10 10 What is the amount of
expense relative to compensated absences that should be reported on
Simson’s income statement for 2006? 47) A company buys an oil rig for

$1,000,000 on January 1, 2007. The life of the rig is 10 years and the
expected cost to dismantle the rig at the end of 10 years is $200,000
(present value at 10% is $77,110). 10% is an appropriate interest rate for
this company. What expense should be recorded for 2007 as a result of
these events? 48) A company offers a cash rebate of $1 on each $4
package of batteries sold during 2007. Historically, 10% of customers
mail in the rebate form. During 2007, 6,000,000 packages of batteries
are sold, and 210,000 $1 rebates are mailed to customers. What is the
rebate expense and liability, respectively, shown on the 2007 financial
statements dated December 31? 49) A contingency can be accrued when
50) Which of the following sets of conditions would give rise to the
accrual of a contingency under current generally accepted accounting
principles? 51) Mark Ward is a farmer who owns land which borders on
the right-of-way of the Northern Railroad. On August 10, 2007, due to
the admitted negligence of the Railroad, hay on the farm was set on fire
and burned. Ward had had a dispute with the Railroad for several years
concerning the ownership of a small parcel of land. The representative
of the Railroad has offered to assign any rights which the Railroad may
have in the land to Ward in exchange for a release of his right to
reimbursement for the loss he has sustained from the fire. Ward appears
inclined to accept the Railroad's offer. The Railroad's 2007 financial
statements should include the following related to the incident: 52) An
example of an item which is NOT a liability is 53) The covenants and
other terms of the agreement between the issuer of bonds and the lender
are set forth in the 54) Bonds for which the owners' names are NOT
registered with the issuing corporation are called 55) Minimum lease
payments may include a 56) What impact does a bargain purchase
option have on the present value of the minimum lease payments
computed by the lessee? 57) Which of the following is a correct
statement of one of the capitalization criteria? 58) In order to properly

record a direct-financing lease, the lessor needs to know how to
calculate the lease receivable. The lease receivable in a direct-financing
lease is best defined as 59) In the earlier years of a lease, from the
lessee's perspective, the use of the 60) In a lease that is appropriately
recorded as a direct-financing lease by the lessor, unearned income
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ACC 422 Final Exam Guide 3SET 3 1) Which of the following is NOT
considered cash for financial reporting purposes? 2) What is the
preferable presentation of accounts receivable from officers, employees,
or affiliated companies on a balance sheet? 3) Which of the following
items should NOT be included in the Cash caption on the balance sheet?
4) The advantage of relating a company's bad debt expense to its
outstanding accounts receivable is that this approach 5) Which of the
following is a generally accepted method of determining the amount of
the adjustment to bad debt expense? 6) Assuming that the ideal measure
of short-term receivables in the balance sheet is the discounted value of
the cash to be received in the future, failure to follow this practice
usually does NOT make the balance sheet misleading because 7) Eller
Co. received merchandise on consignment. As of January 31, Eller
included the goods in inventory, but did NOT record the transaction. The
effect of this on its financial statements for January 31 would be 8) If the

beginning inventory for 2006 is overstated, the effects of this error on
cost of goods sold for 2006, net income for 2006, and assets at
December 31, 2007, respectively, are 9) The accountant for the Orion
Sales Company is preparing the income statement for 2007 and the
balance sheet at December 31, 2007. Orion uses the periodic inventory
system. The January 1, 2007 merchandise inventory balance will appear
10) The use of a Discounts Lost account implies that the recorded cost of
a purchased inventory item is its 11) When using the periodic inventory
system, which of the following generally would NOT be separately
accounted for in the computation of cost of goods sold? 12) The use of a
Purchase Discounts account implies that the recorded cost of a
purchased inventory item is its 13) In no case can "market" in the lower-
of-cost-or-market rule be more than 14) When the direct method is used
to record inventory at market 15) Designated market value 16) The retail
inventory method is based on the assumption that the 17) In 2006, Lucas
Manufacturing signed a contract with a supplier to purchase raw
materials in 2007 for $700,000. Before the December 31, 2006 balance
sheet date, the market price for these materials dropped to $510,000. The
journal entry to record this situation at December 31, 2006 will result in
a credit that should be reported 18) The gross profit method of inventory
valuation is invalid when 19) Which of the following is NOT a major
characteristic of a plant asset? 20) The cost of land does NOT include
21) If a corporation purchases a lot and building and subsequently tears
down the building and uses the property as a parking lot, the proper
accounting treatment of the cost of the building would depend on 22) To
be consistent with the historical cost principle, overhead costs incurred
by an enterprise constructing its own building should be 23) When
computing the amount of interest cost to be capitalized, the concept of
"avoidable interest" refers to 24) The period of time during which
interest must be capitalized ends when 25) Construction of a qualifying

asset is started on April 1 and finished on December 1. The fraction used
to multiply an expenditure made on April 1 to find weighted-average
accumulated expenditures is 26) When funds are borrowed to pay for
construction of assets that qualify for capitalization of interest, the
excess funds NOT needed to pay for construction may be temporarily
invested in interest-bearing securities. Interest earned on these temporary
investments should be 27) When a plant asset is acquired by issuance of
common stock, the cost of the plant asset is properly measured by the
28) If an industrial firm uses the units-of-production method for
computing depreciation on its only plant asset, factory machinery, the
credit to accumulated depreciation from period to period during the life
of the firm will 29) The term "depreciable cost," or "depreciable base,"
as it is used in accounting, refers to 30) Which of the following most
accurately reflects the concept of depreciation as used in accounting?
31) Prentice Company purchased a depreciable asset for $200,000. The
depreciation base of this asset? 32) Pine Company purchased a
depreciation. What is the depreciation expense on this asset? 34) The
cost of purchasing patent rights for a product that might otherwise have
seriously competed with one of the purchaser's patented products should
be 35) Riser Corporation was granted a patent on a product on January
1, 1998. To protect its patent, the corporation purchased on January 1,

2007 a patent on a competing product which was originally issued on
January 10, 2003. Because of its unique plant, Riser Corporation does
NOT feel the competing patent can be used in producing a product. The
cost of the competing patent should be 36) Which of the following
methods of amortization is normally used for intangible assets? 37)
General Products Company bought Special Products Division in 2006
and appropriately booked $250,000 of goodwill related to the purchase.
On December 31, 2007, the fair value of Special Products Division is
$2,000,000 and it is carried on General Product’s books for a total of
$1,700,000, including the goodwill. An analysis of Special Products
Division’s assets indicates that goodwill of $200,000 exists on
December 31, 2007. What goodwill impairment should be recognized by
General Products in 2007? 38) Twilight Corporation acquired End-of-
the-World Products on January 1, 2008 for $2,000,000, and recorded
goodwill of $375,000 as a result of that purchase. At December 31,
2008, the End-of-the-World Products Division had a fair value of
$1,700,000. The net identifiable assets of the Division (excluding
goodwill) had a fair value of $1,450,000 at that time. What amount of
loss on impairment of goodwill should Twilight record in 2008? 39)
Fleming Corporation acquired Out-of-Sight Products on January 1, 2008
for $4,000,000, and recorded goodwill of $750,000 as a result of that
purchase. At December 31, 2008, the Out-of-Sight Products Division
had a fair value of $3,400,000. The net identifiable assets of the Division
(excluding goodwill) had a fair value of $2,900,000 at that time. What
amount of loss on impairment of goodwill should Fleming record in
2008? 40) When a patent is amortized, the credit is usually made to 41)
The reason goodwill is sometimes referred to as a master valuation
account is because 42) Easton Company and Lofton Company were
combined in a purchase transaction. Easton was able to acquire Lofton at
a bargain price. The sum of the market or appraised values of

identifiable assets acquired less the fair value of liabilities assumed
exceeded the cost to Easton. After revaluing noncurrent assets to zero,
there was still some "negative goodwill." Proper accounting treatment
by Easton is to report the amount as 43) Stock dividends distributable
should be classified on the 44) Which of the following statements is
false? 45) Which of the following items is a current liability? 46)
Simson Company has 35 employees who work 8-hour days and are paid
hourly. On January 1, 2006 the company began a program of granting its
employees is as follows: What is the amount of expense relative to
compensated absences that should be reported on Simson’s income
statement for 2006? 47) A company offers a cash rebate of $1 on each
$4 package of batteries sold during 2007. Historically, 10% of customers
statements dated December 31? 48) A company offers a cash rebate of
$1 on each $4 package of light bulbs sold during 2007. Historically,
10% of customers mail in the rebate form. During 2007, 4,000,000
packages of light bulbs are sold, and 140,000 $1 rebates are mailed to
customers. What is the rebate expense and liability, respectively, shown
on the 2007 financial statements dated December 31? 49) A contingency
can be accrued when 50) Mark Ward is a farmer who owns land which
borders on the right-of-way of the Northern Railroad. On August 10,
2007, due to the admitted negligence of the Railroad, hay on the farm
was set on fire and burned. Ward had had a dispute with the Railroad for
several years concerning the ownership of a small parcel of land. The
representative of the Railroad has offered to assign any rights which the
Railroad may have in the land to Ward in exchange for a release of his

right to reimbursement for the loss he has sustained from the fire. Ward
appears inclined to accept the Railroad's offer. The Railroad's 2007
financial statements should include the following related to the incident:
principles? 52) If bonds are issued initially at a premium and the
effective-interest method of amortization is used, interest expense in the
earlier years will be 53) An example of an item which is NOT a liability
is 54) The covenants and other terms of the agreement between the
issuer of bonds and the lender are set forth in the 55) Which of the
following is a correct statement of one of the capitalization criteria? 56)
Which of the following best describes current practice in accounting for
leases? 57) While only certain leases are currently accounted for as a
sale or purchase, there is theoretic justification for considering all leases
to be sales or purchases. The principal reason that supports this idea is
that 58) The amount to be recorded as the cost of an asset under capital
lease is equal to the 59) In the earlier years of a lease, from the lessee's
perspective, the use of the 60) If the residual value of a leased asset is
guaranteed by a third party
==============================================
ACC 422 Final Exam Guide All 3 Sets
www.acc422.com

Details of All 180 Questions Given Below SET 1 1. Kraft Enterprises
owns the following assets at December 31, 2012. Cash in bank–savings
account 67,516 Checking account balance 26,445 Cash on hand
9,478 Postdated checks 753 Cash refund due from IRS
40,324 Certificates of deposit (180-day) 94,754 What amount
should be reported as cash? Question 2 Presented below is information
related to Rembrandt Inc.’s inventory. (per unit) Skis Boots Parkas
Historical Cost 273.79 152.75 76.37 Selling Price 312.70 208.95 106.27
Cost to distribute 27.38 11.53 3.60 Current replacement cost 292.52
151.31 73.49 Normal profit margin 46.11 41.79 30.62 Determine the
following: Question 3 Matlock Company uses a perpetual inventory
system. Its beginning inventory consists of 67 units that cost $40 each.
During June, the company purchased 202 units at $40 each, returned 8
units for credit, and sold 168 units at $67 each. Journalize the June
transactions. Question 4 Amsterdam Company uses a periodic inventory
system. For April, when the company sold 700 units, the following
information is available. Compute the April 30 inventory and the April
cost of goods sold using the average cost method. Question 5
Amsterdam Company uses a periodic inventory system. For April, when
the company sold 600 units, the following information is available.
Compute the April 30 inventory and the April cost of goods sold using
the FIFO method. Question 6 (FIFO, LIFO, Average Cost Inventory)
Esplanade Company was formed on December 1, 2011. The following
information is available from Esplanade’s inventory records for Product
BAP. Purchases Units Unit Cost January 1, 2012(beginning inventory)
762 8.00 January 5, 2012 1,524 9.00 January 25, 2012 1,651 10.00
February 16, 2012 1,061 11.00 March 26, 2012 762 12.00 A physical
inventory on March 31, 2012, shows 2,032 units on hand. Prepare
schedules to compute the ending inventory at March 31, 2012, under
each of the following inventory methods. Assume Esplanade Company

uses the periodic inventory method. Question 7 Floyd Corporation has
the following four items in its ending inventory. Determine the final
lower of cost or market inventory value for each item. Question 8 Kumar
Inc. uses a perpetual inventory system. At January 1, 2013, inventory
was $320,786 at both cost and market value. At December 31, 2013, the
inventory was $428,714 at cost and $403,231 at market value. Prepare
the necessary December 31 entry under: Question 9 Boyne Inc. had
beginning inventory of $15,000 at cost and $25,000 at retail. Net
purchases were $150,000 at cost and $212,500 at retail. Net markups
were $12,500; net markdowns were $8,750; and sales were $196,250.
Compute ending inventory at cost using the conventional retail method.
Question 10 (Gross Profit Method) Astaire Company uses the gross
profit method to estimate inventory for monthly reporting purposes.
Presented below is information for the month of May. Question 11
Previn Brothers Inc. purchased land at a price of $30,400. Closing costs
were $1,820. An old building was removed at a cost of $14,850. What
amount should be recorded as the cost of the land? Question 12 Garcia
Corporation purchased a truck by issuing an $108,000, 4-year, zero-
interest-bearing note to Equinox Inc. The market rate of interest for
obligations of this nature is 10%. Prepare the journal entry to record the
purchase of this truck. Question 13 Mohave Inc. purchased land,
building, and equipment from Laguna Corporation for a cash payment of
$352,800. The estimated fair values of the assets are land $67,200,
building $246,400, and equipment $89,600. At what amounts should
each of the three assets be recorded? Question 14 Fielder Company
obtained land by issuing 2,000 shares of its $12 par value common
stock. The land was recently appraised at $103,700. The common stock
is actively traded at $50 per share. Prepare the journal entry to record the
acquisition of the land. Question 15 Navajo Corporation traded a used
truck (cost $23,600, accumulated depreciation $21,240) for a small

computer worth $4,366. Navajo also paid $1,180 in the transaction.
Prepare the journal entry to record the exchange. Question 16 Mehta
Company traded a used welding machine (cost $10,080, accumulated
depreciation $3,360) for office equipment with an estimated fair value of
$5,600. Mehta also paid $3,360 cash in the transaction. Prepare the
journal entry to record the exchange. Question 17 Depreciation is
normally computed on the basis of the nearest A). full month and to the
nearest dollar. B). day and to the nearest cent. C). day and to the nearest
dollar. D). full month and to the nearest cent. Question 18 Fernandez
Corporation purchased a truck at the beginning of 2012 for $54,180. The
truck is estimated to have a salvage value of $2,580 and a useful life of
206,400 miles. It was driven 29,670 miles in 2012 and 39,990 miles in
2013. Compute depreciation expense for 2012 and 2013. Question 19
Lockhard Company purchased machinery on January 1, 2012, for
$79,200. The machinery is estimated to have a salvage value of $7,920
after a useful life of 8 years. (a) Compute 2012 depreciation expense
using the double-declining balance method. (b) Compute 2012
depreciation expense using the double-declining balance method
assuming the machinery was purchased on October 1, 2012. Question 20
Jurassic Company owns machinery that cost $1,145,700 and has
accumulated depreciation of $458,280. The expected future net cash
flows from the use of the asset are expected to be $636,500. The fair
value of the equipment is $509,200. Prepare the journal entry, if any, to
record the impairment loss. Question 21 Everly Corporation acquires a
coal mine at a cost of $501,600. Intangible development costs total
$125,400. After extraction has occurred, Everly must restore the
property (estimated fair value of the obligation is $100,320), after which
it can be sold for $200,640. Everly estimates that 5,016 tons of coal can
be extracted. If 878 tons are extracted the first year, prepare the journal
entry to record depletion. Question 22 Francis Corporation purchased an

asset at a cost of $58,200 on March 1, 2012. The asset has a useful life
of 8 years and a salvage value of $5,820. For tax purposes, the MACRS
class life is 5 years. Compute tax depreciation for each year 2012–2017.
Question 23 Celine Dion Corporation purchases a patent from Salmon
Company on January 1, 2012, for $50,820. The patent has a remaining
legal life of 16 years. Celine Dion feels the patent will be useful for 10
years. Prepare Celine Dion’s journal entries to record the purchase of the
patent and 2012 amortization. Question 24 Karen Austin Corporation
has capitalized software costs of $768,500, and sales of this product the
first year totaled $390,630. Karen Austin anticipates earning $911,470 in
additional future revenues from this product, which is estimated to have
an economic life of 4 years. Compute the amount of software cost
amortization for the first year. (a) Compute the amount of software cost
amortization for the first year using the percent of revenue approach. (b)
Compute the amount of software cost amortization for the first year
using the straight-line approach. Question 25 Jeff Beck is a farmer who
owns land which borders on the right-of-way of the Northern Railroad.
On August 10, 2012, due to the admitted negligence of the Railroad, hay
on the farm was set on fire and burned. Beck had had a dispute with the
Railroad for several years concerning the ownership of a small parcel of
land. The representative of the Railroad has offered to assign any rights
which the Railroad may have in the land to Beck in exchange for a
release of his right to reimbursement for the loss he has sustained from
the fire. Beck appears inclined to accept the Railroad’s offer. The
Railroad’s 2012 financial statements should include the following
related to the incident: A). recognition of a loss only. B). creation of a
liability only. C). disclosure in note form only. D). recognition of a loss
and creation of a liability for the value of the land. Question 26 Roley
Corporation uses a periodic inventory system and the gross method of
accounting for purchase discounts. On July 1, Roley purchased $66,000

of inventory, terms 2/10, n/30, FOB shipping point. Roley paid freight
costs of $1,210. On July 3, Roley returned damaged goods and received
credit of $6,600. On July 10, Roley paid for the goods. Prepare all
necessary journal entries for Roley. Question 27 Takemoto Corporation
borrowed $93,000 on November 1, 2012, by signing a $95,093, 3-
month, zero-interest-bearing note. Prepare Takemoto’s November 1,
2012, entry; the December 31, 2012, annual adjusting entry; and the
February 1, 2013, entry. (For multiple debit/credit en tries, list amounts
from largest to smallest, e.g. 10, 8, 6. Round all answers to 0 decimal
places, e.g. 11,150.) Question 28 Whiteside Corporation issues $629,000
of 9% bonds, due in 14 years, with interest payable semiannually. At the
time of issue, the annual market rate for such bonds is 10%. Compute
the issue price of the bonds.(Use the present value tables in the text.
Question 29 Indiana Jones Company enters into a 6-year lease of
equipment on January 1, 2012, which requires 6 annual payments of
$37,560 each, beginning January 1, 2012. In addition, the lessee
guarantees a residual value of $20,870 at lease-end. The equipment has a
useful life of 6 years. Assume that for Lost Ark Company, the lessor,
collectibility is reasonably predictable, there are no important
uncertainties concerning costs, and the carrying amount of the
machinery is $191,722. Prepare Lost Ark’s January 1, 2012, journal
entries. Question 30 On January 1, 2012, Irwin Animation sold a truck to
Peete Finance for $26,050 and immediately leased it back. The truck
was carried on Irwin’s books at $20,800. The term of the lease is 5
years, and title transfers to Irwin at lease-end. The lease requires five
equal rental payments of $7,048 at the end of each year. The appropriate
rate of interest is 11%, and the truck has a useful life of 5 years with no
salvage value. Prepare Irwin’s 2012 journal entries. SET 2 1) Which of
the following is considered cash? 2) Bank overdrafts, if material, should
be 3) Which of the following is NOT considered cash for financial

reporting purposes? 4) If a company employs the gross method of
recording accounts receivable from customers, then sales discounts
taken should be reported as 5) Which of the following methods of
determining annual bad debt expense best achieves the matching
concept? 6) The advantage of relating a company's bad debt expense to
its outstanding accounts receivable is that this approach 7) The failure to
record a purchase of mer¬chandise on account even though the goods
are properly included in the physical inven¬tory results in 8) Belle Co.
received merchandise on consignment. As of March 31, Belle had
recorded the transaction as a purchase and included the goods in
inventory. The effect of this on its financial statements for March 31 9)
Eller Co. received merchandise on consignment. As of January 31, Eller
included the goods in inventory, but did NOT record the transaction. The
effect of this on its financial statements for January 31 10) The use of a
purchased inventory item is its 11) Which method of inventory pricing
best approximates specific identification of the actual flow of costs and
units in most manufacturing situations? 12) When using the periodic
inventory system, which of the following generally would NOT be
separately accounted for in the computation of cost of goods sold? 13)
An item of inventory purchased this period for $15.00 has been
incorrectly written down to its current replacement cost of $10.00. It
sells during the following period for $30.00, its normal selling price,
with disposal costs of $3.00 and normal profit of $12.00. Which of the
following statements is NOT true? 14) Designated market value 15) In
no case can "market" in the lower-of-cost-or-market rule be more than
16) A major advantage of the retail inventory method is that it 17) The
gross profit method of inventory valuation is invalid when 18) The retail
inventory method is based on the assumption that the 19) Which of the
following is NOT a major characteristic of a plant asset? 20) Cotton

Hotel Corporation recently purchased Holiday Hotel and the land on
which it is located with the plan to tear down the Holiday Hotel and
build a new luxury hotel on the site. The cost of the Holiday Hotel
should be 21) If a corporation purchases a lot and building and
subsequently tears down the building and uses the property as a parking
lot, the proper accounting treatment of the cost of the building would
depend on 22) The period of time during which interest must be
capitalized ends when 23) To be consistent with the historical cost
principle, overhead costs incurred by an enterprise constructing its own
building should be 24) When computing the amount of interest cost to
be capitalized, the concept of "avoidable interest" refers to 25) The
King-Kong Corporation exchanges one plant asset for a similar plant
asset and gives cash in the exchange. The exchange is NOT expected to
cause a material change in the future cash flows for either entity. If a
gain on the disposal of the old asset is indicated, the gain will 26) When
funds are borrowed to pay for construction of assets that qualify for
capitalization of interest, the excess funds NOT needed to pay for
construction may be temporarily invested in interest-bearing securities.
Interest earned on these temporary investments should be 27) Which of
the following is NOT a condition that must be satisfied before interest
capitalization can begin on a qualifying asset? 28) Which of the
following most accurately reflects the concept of depreciation as used in
accounting? 29) Which of the following principles best describes the
conceptual rationale for the methods of matching depreciation expense
with revenues? 30) The major difference between the service life of an
asset and its physical life is that 31) Starr Company purchased a

depreciation. What is the depreciation expense on this asset? 33)
Harrison Company purchased a depreciable asset for $100,000. The
depreciation base of this asset? 34) Costs incurred internally to create
intangibles are 35) The cost of purchasing patent rights for a product that
might otherwise have seriously competed with one of the purchaser's
patented products should be 36) Riser Corporation was granted a patent
on a product on January 1, 1998. To protect its patent, the corporation
purchased on January 1, 2007 a patent on a competing product which
was originally issued on January 10, 2003. Because of its unique plant,
Riser Corporation does NOT feel the competing patent can be used in
producing a product. The cost of the competing patent should be 37)
Twilight Corporation acquired End-of-the-World Products on January 1,
2008 for $2,000,000, and recorded goodwill of $375,000 as a result of
that purchase. At December 31, 2008, the End-of-the-World Products
Division had a fair value of $1,700,000. The net identifiable assets of the
Division (excluding goodwill) had a fair value of $1,450,000 at that
time. What amount of loss on impairment of goodwill should Twilight
record in 2008? 38) Fleming Corporation acquired Out-of-Sight
Products on January 1, 2008 for $4,000,000, and recorded goodwill of
$750,000 as a result of that purchase. At December 31, 2008, the Out-of-
Sight Products Division had a fair value of $3,400,000. The net
identifiable assets of the Division (excluding goodwill) had a fair value
of $2,900,000 at that time. What amount of loss on impairment of
goodwill should Fleming record in 2008? 39) Malrom Manufacturing
Company acquired a patent on a manufacturing process on January 1,

2006 for $10,000,000. It was expected to have a 10 year life and no
residual value. Malrom uses straight-line amortization for patents. On
December 31, 2007, the expected future cash flows expected from the
patent were expected to be $800,000 per year for the next eight years.
The present value of these cash flows, discounted at Malrom’s market
interest rate, is $4,800,000. At what amount should the patent be carried
on the December 31, 2007 balance sheet? 40) Goodwill 41) Easton
Company and Lofton Company were combined in a purchase
transaction. Easton was able to acquire Lofton at a bargain price. The
sum of the market or appraised values of identifiable assets acquired less
the fair value of liabilities assumed exceeded the cost to Easton. After
revaluing noncurrent assets to zero, there was still some "negative
goodwill." Proper accounting treatment by Easton is to report the
amount as 42) The reason goodwill is sometimes referred to as a master
valuation account is because 43) Which of the following items is a
current liability? 44) Which of the following statements is false? 45)
Stock dividends distributable should be classified on the 46) Simson
Company has 35 employees who work 8-hour days and are paid hourly.
On January 1, 2006 the company began a program of granting its
employees is as follows: Year Hourly Wages Vacation Days Earned by
Each Employee Vacation Dayse Used by Each Employee 2006 $28.50
10 0 2007 $27.00 10 8 2008 $28.50 10 10 What is the amount of
expense relative to compensated absences that should be reported on
Simson’s income statement for 2006? 47) A company buys an oil rig for
$1,000,000 on January 1, 2007. The life of the rig is 10 years and the
expected cost to dismantle the rig at the end of 10 years is $200,000
(present value at 10% is $77,110). 10% is an appropriate interest rate for
this company. What expense should be recorded for 2007 as a result of

these events? 48) A company offers a cash rebate of $1 on each $4
package of batteries sold during 2007. Historically, 10% of customers
statements dated December 31? 49) A contingency can be accrued when
principles? 51) Mark Ward is a farmer who owns land which borders on
the right-of-way of the Northern Railroad. On August 10, 2007, due to
the admitted negligence of the Railroad, hay on the farm was set on fire
and burned. Ward had had a dispute with the Railroad for several years
concerning the ownership of a small parcel of land. The representative
of the Railroad has offered to assign any rights which the Railroad may
have in the land to Ward in exchange for a release of his right to
reimbursement for the loss he has sustained from the fire. Ward appears
inclined to accept the Railroad's offer. The Railroad's 2007 financial
statements should include the following related to the incident: 52) An
example of an item which is NOT a liability is 53) The covenants and
other terms of the agreement between the issuer of bonds and the lender
are set forth in the 54) Bonds for which the owners' names are NOT
registered with the issuing corporation are called 55) Minimum lease
payments may include a 56) What impact does a bargain purchase
option have on the present value of the minimum lease payments
computed by the lessee? 57) Which of the following is a correct
statement of one of the capitalization criteria? 58) In order to properly
record a direct-financing lease, the lessor needs to know how to
calculate the lease receivable. The lease receivable in a direct-financing
lease is best defined as 59) In the earlier years of a lease, from the
lessee's perspective, the use of the 60) In a lease that is appropriately

recorded as a direct-financing lease by the lessor, unearned income SET
3 1) Which of the following is NOT considered cash for financial
reporting purposes? 2) What is the preferable presentation of accounts
receivable from officers, employees, or affiliated companies on a
balance sheet? 3) Which of the following items should NOT be included
in the Cash caption on the balance sheet? 4) The advantage of relating a
company's bad debt expense to its outstanding accounts receivable is
that this approach 5) Which of the following is a generally accepted
method of determining the amount of the adjustment to bad debt
expense? 6) Assuming that the ideal measure of short-term receivables
in the balance sheet is the discounted value of the cash to be received in
the future, failure to follow this practice usually does NOT make the
balance sheet misleading because 7) Eller Co. received merchandise on
consignment. As of January 31, Eller included the goods in inventory,
but did NOT record the transaction. The effect of this on its financial
statements for January 31 would be 8) If the beginning inventory for
2006 is overstated, the effects of this error on cost of goods sold for
2006, net income for 2006, and assets at December 31, 2007,
respectively, are 9) The accountant for the Orion Sales Company is
preparing the income statement for 2007 and the balance sheet at
December 31, 2007. Orion uses the periodic inventory system. The
January 1, 2007 merchandise inventory balance will appear 10) The use
of a Discounts Lost account implies that the recorded cost of a
purchased inventory item is its 11) When using the periodic inventory
system, which of the following generally would NOT be separately
accounted for in the computation of cost of goods sold? 12) The use of a
purchased inventory item is its 13) In no case can "market" in the lower-
of-cost-or-market rule be more than 14) When the direct method is used
to record inventory at market 15) Designated market value 16) The retail

inventory method is based on the assumption that the 17) In 2006, Lucas
Manufacturing signed a contract with a supplier to purchase raw
materials in 2007 for $700,000. Before the December 31, 2006 balance
sheet date, the market price for these materials dropped to $510,000. The
journal entry to record this situation at December 31, 2006 will result in
a credit that should be reported 18) The gross profit method of inventory
valuation is invalid when 19) Which of the following is NOT a major
characteristic of a plant asset? 20) The cost of land does NOT include
21) If a corporation purchases a lot and building and subsequently tears
down the building and uses the property as a parking lot, the proper
accounting treatment of the cost of the building would depend on 22) To
be consistent with the historical cost principle, overhead costs incurred
by an enterprise constructing its own building should be 23) When
computing the amount of interest cost to be capitalized, the concept of
"avoidable interest" refers to 24) The period of time during which
interest must be capitalized ends when 25) Construction of a qualifying
asset is started on April 1 and finished on December 1. The fraction used
to multiply an expenditure made on April 1 to find weighted-average
accumulated expenditures is 26) When funds are borrowed to pay for
construction of assets that qualify for capitalization of interest, the
excess funds NOT needed to pay for construction may be temporarily
invested in interest-bearing securities. Interest earned on these temporary
investments should be 27) When a plant asset is acquired by issuance of
common stock, the cost of the plant asset is properly measured by the
28) If an industrial firm uses the units-of-production method for
computing depreciation on its only plant asset, factory machinery, the
credit to accumulated depreciation from period to period during the life
of the firm will 29) The term "depreciable cost," or "depreciable base,"
as it is used in accounting, refers to 30) Which of the following most
accurately reflects the concept of depreciation as used in accounting?

31) Prentice Company purchased a depreciable asset for $200,000. The
depreciation base of this asset? 32) Pine Company purchased a
depreciation. What is the depreciation expense on this asset? 34) The
cost of purchasing patent rights for a product that might otherwise have
seriously competed with one of the purchaser's patented products should
be 35) Riser Corporation was granted a patent on a product on January
1, 1998. To protect its patent, the corporation purchased on January 1,
2007 a patent on a competing product which was originally issued on
January 10, 2003. Because of its unique plant, Riser Corporation does
NOT feel the competing patent can be used in producing a product. The
cost of the competing patent should be 36) Which of the following
methods of amortization is normally used for intangible assets? 37)
General Products Company bought Special Products Division in 2006
and appropriately booked $250,000 of goodwill related to the purchase.
On December 31, 2007, the fair value of Special Products Division is
$2,000,000 and it is carried on General Product’s books for a total of
$1,700,000, including the goodwill. An analysis of Special Products
Division’s assets indicates that goodwill of $200,000 exists on
December 31, 2007. What goodwill impairment should be recognized by
General Products in 2007? 38) Twilight Corporation acquired End-of-
the-World Products on January 1, 2008 for $2,000,000, and recorded

goodwill of $375,000 as a result of that purchase. At December 31,
2008, the End-of-the-World Products Division had a fair value of
$1,700,000. The net identifiable assets of the Division (excluding
goodwill) had a fair value of $1,450,000 at that time. What amount of
loss on impairment of goodwill should Twilight record in 2008? 39)
Fleming Corporation acquired Out-of-Sight Products on January 1, 2008
for $4,000,000, and recorded goodwill of $750,000 as a result of that
purchase. At December 31, 2008, the Out-of-Sight Products Division
had a fair value of $3,400,000. The net identifiable assets of the Division
(excluding goodwill) had a fair value of $2,900,000 at that time. What
amount of loss on impairment of goodwill should Fleming record in
2008? 40) When a patent is amortized, the credit is usually made to 41)
The reason goodwill is sometimes referred to as a master valuation
account is because 42) Easton Company and Lofton Company were
combined in a purchase transaction. Easton was able to acquire Lofton at
a bargain price. The sum of the market or appraised values of
identifiable assets acquired less the fair value of liabilities assumed
exceeded the cost to Easton. After revaluing noncurrent assets to zero,
there was still some "negative goodwill." Proper accounting treatment
by Easton is to report the amount as 43) Stock dividends distributable
should be classified on the 44) Which of the following statements is
false? 45) Which of the following items is a current liability? 46)
Simson Company has 35 employees who work 8-hour days and are paid
hourly. On January 1, 2006 the company began a program of granting its
employees is as follows: What is the amount of expense relative to
compensated absences that should be reported on Simson’s income
statement for 2006? 47) A company offers a cash rebate of $1 on each
$4 package of batteries sold during 2007. Historically, 10% of customers

statements dated December 31? 48) A company offers a cash rebate of
$1 on each $4 package of light bulbs sold during 2007. Historically,
10% of customers mail in the rebate form. During 2007, 4,000,000
packages of light bulbs are sold, and 140,000 $1 rebates are mailed to
customers. What is the rebate expense and liability, respectively, shown
on the 2007 financial statements dated December 31? 49) A contingency
can be accrued when 50) Mark Ward is a farmer who owns land which
borders on the right-of-way of the Northern Railroad. On August 10,
2007, due to the admitted negligence of the Railroad, hay on the farm
was set on fire and burned. Ward had had a dispute with the Railroad for
several years concerning the ownership of a small parcel of land. The
representative of the Railroad has offered to assign any rights which the
Railroad may have in the land to Ward in exchange for a release of his
right to reimbursement for the loss he has sustained from the fire. Ward
appears inclined to accept the Railroad's offer. The Railroad's 2007
financial statements should include the following related to the incident:
principles? 52) If bonds are issued initially at a premium and the
effective-interest method of amortization is used, interest expense in the
earlier years will be 53) An example of an item which is NOT a liability
is 54) The covenants and other terms of the agreement between the
issuer of bonds and the lender are set forth in the 55) Which of the
following is a correct statement of one of the capitalization criteria? 56)
Which of the following best describes current practice in accounting for
leases? 57) While only certain leases are currently accounted for as a
sale or purchase, there is theoretic justification for considering all leases

to be sales or purchases. The principal reason that supports this idea is
that 58) The amount to be recorded as the cost of an asset under capital
lease is equal to the 59) In the earlier years of a lease, from the lessee's
perspective, the use of the 60) If the residual value of a leased asset is
guaranteed by a third party
==============================================
ACC 422 Week 1 DQ 1
www.acc422.com
Consider how an organization must manage cash, receivables, and
inventory. Which of the three variables is the most important to manage?
Is one more susceptible to fraud and errors than the others? Explain your
answer.
How would a misstatement in each affect the organization?
==============================================
ACC 422 Week 1 DQ 2

www.acc422.com
What is the perpetual method of tracking inventory?
How does it differ from the periodic method of tracking inventory?
Why would a company choose one method over the other method?
Which is the best method? Why?
==============================================
ACC 422 Week 1 DQ 3
www.acc422.com
What are the different ways to estimate bad debt?
How does this affect net income?
What does Generally Accepted Accounting Principles (GAAP) require?
Why?
Should all companies have bad debt? Explain your answer.
==============================================

ACC 422 Week 1 Individual Assignment Disclosure
Analysis Paper (2 Papers)
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This Tutorial contains 2 Papers Resource: Internet Select a publicly held
company to use as the basis for this assignment. Research your selected
company and acquire the company’s most recent financial statements
using the Internet. Prepare a 700- to 1,050-word paper analyzing the
disclosures contained within the notes to the financial statements related
to cash and cash equivalents, receivables, and inventories. Include a list
identifying the components of the organization’s cash and cash
equivalents. Format your paper consistent with APA guidelines.
==============================================
ACC 422 Week 1 Team Assignment Audited Financial
Statements (Nordstrom Inc.)
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Each team is assigned a publically traded company that they will use to
answer the questions in the Financial Scavenger Hunt assigned each

week. Team A: Nordstrom Inc. Team B: Macy's Inc. Locate your
assigned company's latest audited financial statements and post them on
the assignment tab. Review the financial statements, including any notes
and supplemental information, and answer the following questions.
Indicate where you found the answer to the questions. If calculations are
required, show your work. Post your answers to the assignment tab.
Who are the auditors and have the auditors changed in the past 2 years?
If yes, who were the previous auditors and why was there a change? 1.
What kind of opinion did the auditors issue on 1. The company as
a whole 2. The internal control system 3. What is the date of the
audit opinion? This is the date that fixes the auditor's liability. 4. Have
the financials been restated in the past 2 years? 5. Have there been any
changes in the following positions in the past 2 years? 1. Chief
Executive Officer 2. Chief Financial Officer
==============================================
ACC 422 Week 1 Wileyplus BE 7-1, BE 7-7, Ex 7-4, Ex
7-9, Ex 7-22, Ex 7-24, CA 7-2, Pr 7-4 (with Excel File)
www.acc422.com
This Tutorial contains Excel File which can be used to solve for any
values Complete the following assignments in WileyPLUS: • Brief
Exercise 7-1 • Brief Exercise 7-7 • Exercise 7-4 • Exercise 7-9 •
Exercise 7-22 • Exercise 7-24 (Part Level Submission) • Concept
for Analysis 7-2 (Essay) • Problem 7-4 (Part Level Submission) Brief

Exercise 7-1 Marin Enterprises owns the following assets at December
31, 2017. Cash in bank—savings account 65,800 Checking
account balance 23,800 Cash on hand 8,920 Postdated checks
900 Cash refund due from IRS 36,000 Certificates of deposit
(180-day) 90,240 What amount should be reported as cash? Cash to be
reported Brief Exercise 7-7 Your answer is partially correct. Try again.
Blossom Family Importers sold goods to Tung Decorators for $34,200
on November 1, 2017, accepting Tung’s $34,200, 6-month, 5% note.
Prepare Blossom’s November 1 entry, December 31 annual adjusting
entry, and May 1 entry for the collection of the note and interest. (If no
entry is required, select "No Entry" for the account titles and enter 0 for
the amounts. Credit account titles are automatically indented when the
amount is entered. Do not indent manually. Record journal entries in the
order presented in the problem.) Exercise 7-4 Your accounts receivable
clerk, Mitra Adams, to whom you pay a salary of $3,255 per month, has
just purchased a new Acura. You decide to test the accuracy of the
accounts receivable balance of $177,940 as shown in the ledger. The
following information is available for your first year in business. (1)
Collections from customers $429,660 (2) Merchandise purchased
694,400 (3) Ending merchandise inventory 195,300 (4)
Goods are marked to sell at 40% above cost Compute an estimate
of the ending balance of accounts receivable from customers that should
appear in the ledger and any apparent shortages. Assume that all sales
are made on account. Exercise 7-9 The trial balance before adjustment
of Buffalo Inc. shows the following balances. Give the entry for
estimated bad debts assuming that the allowance is to provide for
doubtful accounts on the basis of (a) 5% of gross accounts receivable
and (b) 6% of gross accounts receivable and Allowance for Doubtful
Accounts has a $1,731 credit balance. Exercise 7-22 Sheridan, Inc.
decided to establish a petty cash fund to help ensure internal control over

its small cash expenditures. The following information is available for
the month of April. 1. On April 1, it established a petty cash fund in the
amount of $249. 2. A summary of the petty cash expenditures made by
the petty cash custodian as of April 10 is as follows. Delivery charges
paid on merchandise purchased $73 Supplies purchased and used 38
Postage expense 46 I.O.U. from employees 30 Miscellaneous expense
49 The petty cash fund was replenished on April 10. The balance
in the fund was $7. 3. The petty cash fund balance was increased by
$113 to $362 on April 20. Prepare the journal entries to record
transactions related to petty cash for the month of April. Exercise 7-24
(Part Level Submission) Swifty Lansbury Company deposits all receipts
and makes all payments by check. The following information is
available from the cash records. Prepare a bank reconciliation going
from balance per bank and balance per book to correct cash balance.
Concept for Analysis 7-2 (Essay) Kimmel Company uses the net method
of accounting for sales discounts. Kimmel also offers trade discounts to
various groups of buyers. On August 1, 2017, Kimmel sold some
accounts receivable on a without recourse basis. Kimmel incurred a
finance charge. Kimmel also has some notes receivable bearing an
appropriate rate of interest. The principal and total interest are due at
maturity. The notes were received on October 1, 2017, and mature on
September 30, 2019. Kimmel’s operating cycle is less than one year.
Using the net method, how should Kimmel account for the sales
discounts at the date of sale? What is the rationale for the amount
recorded as sales under the net method? Using the net method, what is
the effect on Kimmel’s sales revenues and net income when customers
do not take the sales discounts? What is the effect of trade discounts on
sales revenues and accounts receivable? Why? How should Kimmel
account for the accounts receivable factored on August 1, 2017? Why?
How should Kimmel account for the note receivable and the related

interest on December 31, 2017? Why? Problem 7-4 (Part Level
Submission) (2 parts) From inception of operations to December 31,
2017, Vaughn Corporation provided for uncollectible accounts
receivable under the allowance method. The provisions are recorded,
based on analyses of customers with different risk characteristics. Bad
debts written off were charged to the allowance account; recoveries of
bad debts previously written off were credited to the allowance account,
and no year-end adjustments to the allowance account were made.
Vaughn’s usual credit terms are net 30 days. The balance in Allowance
for Doubtful Accounts was $147,500 at January 1, 2017. During 2017,
credit sales totaled $9,175,300, the provision for doubtful accounts was
determined to be $183,506, $91,753 of bad debts were written off, and
recoveries of accounts previously written off amounted to $19,230.
Vaughn installed a computer system in November 2017, and an aging of
accounts receivable was prepared for the first time as of December 31,
2017. A summary of the aging is as follows. Based on the review of
collectibility of the account balances in the ―prior to 1/1/17‖ aging
category, additional receivables totaling $63,700 were written off as of
December 31, 2017. The 81% uncollectible estimate applies to the
remaining $97,700 in the category. Effective with the year ended
December 31, 2017, Vaughn adopted a different method for estimating
the allowance for doubtful accounts at the amount indicated by the year-
end aging analysis of accounts receivable.
==============================================
ACC 422 Week 2 DQ 1

www.acc422.com
Under what circumstances would a company need to estimate its
inventory?
What are the differences between using the gross profit method and
retail inventory method for estimating inventory?
Which method of estimation, gross profit or retail inventory, is best?
Explain your answer.
==============================================
ACC 422 Week 2 DQ 2
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What are the criteria for capitalization of fixed assets?
What items are included in the cost of a fixed asset?
Should interest be included in the cost of a fixed asset? Explain why or
why not.
==============================================

ACC 422 Week 2 DQ 3
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How do we account for the disposition of fixed assets?
What are the differences in how the exchanges of assets are handled,
pending on whether they are similar or dissimilar?
What is the rationale for these differences?
What is the impact to the companies’ financial statements?
==============================================
ACC 422 Week 2 Learning Team Assignment (New
Syllabus)
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Complete the following three deliverables for this assignment as a team:
1. The Financial Reporting, Procter & Gamble Company, p. 379. 2.

The Financial Statement Analysis Cases, Case 1: Occidental
Petroleum Corporation, p. 379. 3.Problem 7-6, p. 374 Compile all team
member’s input. Click the Assignment Files tab to submit your
assignment. Financial Reporting The Procter & Gamble Company
(P&G) The financial statements of P&G are presented in Appendix B.
The company’s complete annual report, including the notes to the
financial statements, is available online. Instructions Refer to P&G’s
financial statements and the accompanying notes to answer the
following questions. (a) What criteria does P&G use to classify ―Cash
and cash equivalents‖ as reported in its balance sheet? (b) As of June 30,
2014, what balances did P&G have in cash and cash equivalents? What
were the major uses of cash during the year? (c) P&G reports no
allowance for doubtful accounts, suggesting that bad debt expense is not
material for this company. Is it reasonable that a company like P&G
would not have material bad debt expense? Explain. P7-6 (LO2,3)
(Journalize Various Accounts Receivable Transactions) The balance
sheet of Starsky Company at December 31, 2016, includes the
following. Notes receivable $ 36,000 Accounts receivable 182,100 Less:
Allowance for doubtful accounts 17,300 $200,800 Transactions in
2017 include the following. 1. Accounts receivable of $138,000 were
collected including accounts of $60,000 on which 2% sales discounts
were allowed. 2. $5,300 was received in payment of an account which
was written off the books as worthless in 2016. 3. Customer accounts of
$17,500 were written off during the year. 4. At year-end, Allowance for
Doubtful Accounts was estimated to need a balance of $20,000. This
estimate is based on an analysis of aged accounts receivable. Financial
Statement Analysis Cases Case 1: Occidental Petroleum Corporation
Occidental Petroleum Corporation reported the following information in
a recent annual report. What items other than coin and currency may be
included in ―cash‖? (b) What items may be included in ―cash

equivalents‖? (c) What are compensating balance arrangements, and
how should they be reported in financial statements? (d) What are the
possible differences between cash equivalents and short-term
(temporary) investments? (e) Assuming that the sale agreement meets
the criteria for sale accounting, cash proceeds were $345 million, the
carrying value of the receivables sold was $360 million, and the fair
value of the recourse liability was $15 million, what was the effect on
income from the sale of receivables? (f) Briefly discuss the impact of the
transaction in (e) on Occidental’s liquidity.
==============================================
ACC 422 Week 2 Wileyplus Ex 8-2, Ex 8-9, Ex 8-12,
Ex 9-2, Ex 9-7, Ex 9-17, Ex 9-18, Ex 9-20, Ex 9-22
(with Excel File)
www.acc422.com
values Complete the following assignments i • Exercise 8-2 •
Exercise 8-9 (Part Level Submission) • Exercise 8-12 (Part Level
Submission) • Exercise 9-2 • Exercise 9-7 • Exercise 9-17 •
Exercise 9-18 • Exercise 9-20 • Exercise 9-22 Exercise 8-2 In your
audit of Leon Company, you find that a physical inventory on December
31, 2017, showed merchandise with a cost of $400,500 was on hand at
that date. You also discover the following items were all excluded from

the $400,500. Based on the above information, calculate the amount that
should appear on Leon’s balance sheet at December 31, 2017, for
inventory. Exercise 8-9 (Part Level Submission) Cullumber Company
sells one product. Presented below is information for January for
Cullumber Company.Cullumber uses the FIFO cost flow assumption.
All purchases and sales are on account. (a) – (this has 4 parts) Assume
Cullumber uses a periodic system. Prepare all necessary journal entries,
including the end-of-month closing entry to record cost of goods sold. A
physical count indicates that the ending inventory for January is 107
units. Exercise 8-12 (Part Level Submission) Marigold Company was
formed on December 1, 2016. The following information is available
from Marigold’s inventory records for Product BAP.A physical
inventory on March 31, 2017, shows 1,808 units on hand.Prepare
schedule to compute the ending inventory at March 31, 2017, under
FIFO inventory method. Exercise 9-2 Coronado Company uses the
LCNRV method, on an individual-item basis, in pricing its inventory
items. The inventory at December 31, 2017, consists of products D, E, F,
G, H, and I. Relevant per unit data for these products appear
below.Using the LCNRV rule, determine the proper unit value for
balance sheet reporting purposes at December 31, 2017, for each of the
inventory items above. Exercise 9-7 Blue Company follows the practice
of pricing its inventory at the lower-of-cost-or-market, on an individual-
item basis.From the information above, determine the amount of Blue
Company inventory. Exercise 9-17 You are called by Tim Duncan of
Ivanhoe Co. on July 16 and asked to prepare a claim for insurance as a
result of a theft that took place the night before. You suggest that an
inventory be taken immediately. The following data are available.Your
client reports that the goods on hand on July 16 cost $32,800, but you
determine that this figure includes goods of $6,000 received on a
consignment basis. Your past records show that sales are made at

approximately 25% over cost. Duncan’s insurance covers only goods
owned. Compute the claim against the insurance company. Exercise 9-
18 Marigold Lumber Company handles three principal lines of
merchandise with these varying rates of gross profit on cost.On August
18, a fire destroyed the office, lumber shed, and a considerable portion
of the lumber stacked in the yard. To file a report of loss for insurance
purposes, the company must know what the inventories were
immediately preceding the fire. No detail or perpetual inventory records
of any kind were maintained. The only pertinent information you are
able to obtain are the following facts from the general ledger, which was
kept in a fireproof vault and thus escaped destruction.Submit your
estimate of the inventory amounts immediately preceding the fire.
Exercise 9-22 The records of Grouper’s Boutique report the following
data for the month of April.Compute the ending inventory by the
conventional retail inventory method. Exercise 9-20 Presented below is
information related to Marigold Company. Compute the ending
inventory at retail. Which of the methods in (b) above does the
following? Compute ending inventory at lower-of-cost-or-market
Compute cost of goods sold based on (d). Compute gross margin based
on (d).
==============================================
ACC 422 Week 3 DQ 1
www.acc422.com

What is the purpose of depreciation?
Does the book value of a fixed asset (cost minus accumulated
depreciation) communicate to a user what the asset is worth? Explain
why or why not.
Should the financial statements reflect the value of fixed assets? Explain
why or why not.
==============================================
ACC 422 Week 3 DQ 2
www.acc422.com
What are the different methods used to calculate depreciation?
How does a company decide which method it should utilize?
How does its choice affect the financial statements?
Should companies standardize the method of depreciation to enhance
comparability? Explain your answer.
==============================================

ACC 422 Week 3 DQ 3
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What is an intangible asset?
Should all intangible assets be subject to amortization? Explain why or
why not.
Why are some intangible assets not amortized?
What is the implication to the financial statements?
==============================================
ACC 422 Week 3 Team Assignment (Case 3, CA 8-10,
Problem 9-3, Problem 9-13)
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Complete the following four deliverables for this assignment as a team:
1. Case 3: The Kroger Company, p. 440 Complete the following
individually and discuss your individual answers as a team: 1. CA
8-10, p. 437 2. Problem 9-3, p. 483 3.Problem 9-13, p. 487 After

discussing your answers, compile each into a team response. Click the
Assignment Files tab to submit your assignment. The Kroger Company
reported the following data in its annual report (in millions). (a)
Compute Kroger’s inventory turnovers for fiscal years ending January
31, 2015, and February 1, 2014, using: (1) Cost of sales and LIFO
inventory. (2) Cost of sales and FIFO inventory. (b) Some firms
calculate inventory turnover using sales rather than cost of goods sold in
the numerator. Calculate Kroger’s fiscal years ending January 31, 2015,
and February 1, 2014, turnover, using: (1) Sales and LIFO inventory. (2)
Sales and FIFO inventory. (c) State which method you would choose to
evaluate Kroger’s performance. Justify your choice. CA8-10 WRITING
(FIFO and LIFO) Harrisburg Company is considering changing its
inventory valuation method from FIFO to LIFO because of the potential
tax savings. However, management wishes to consider all of the effects
on the company, including its reported performance, before making the
final decision. The inventory account, currently valued on the FIFO
basis, consists of 1,000,000 units at $8 per unit on January 1, 2017.
There are 1,000,000 shares of common stock outstanding as of January
1, 2017, and the cash balance is $400,000. The company has made the
following forecasts for the period 2017–2019. Instructions (a) Prepare a
schedule that illustrates and compares the following data for Harrisburg
Company under the FIFO and the LIFO inventory method for 2017–
2019. Assume the company would begin LIFO at the beginning of 2017.
(1) Year-end inventory balances. (2) Annual net income after taxes. (3)
Earnings per share. (4) Cash balance. Assume all sales are collected in
the year of sale and all purchases, operating expenses, and taxes are paid
during the year incurred. (b) Using the data above, your answer to (a),
and any additional issues you believe need to be considered, prepare a
report that recommends whether or not Harrisburg Company should
change to the LIFO inventory method. Support your conclusions with

appropriate arguments. P9-3 (LO1) (LCNRV--Cost-of-Goods-Sold and
Loss) Malone Company determined its ending inventory at cost and at
LCNRV at December 31, 2017, December 31, 2018, and December 31,
2019, as shown below. (a)Prepare the journal entries required at
December 31, 2018, and at December 31, 2019, assuming that a
perpetual inventory system and the cost-of-goods-sold method of
adjusting to LCNRV is used. (b)Prepare the journal entries required at
December 31, 2018, and at December 31, 2019, assuming that a
perpetual inventory is recorded at cost and reduced to LCNRV using the
loss method. P9-13 (LO7) GROUPWORK (Retail, LIFO Retail, and
Inventory Shortage) Late in 2014, Joan Seceda and four other investors
took the chain of Becker Department Stores private, and the company
has just completed its third year of operations under the ownership of the
investment group. Andrea Selig, controller of Becker Department Stores,
is in the process of preparing the year-end financial statements. Based on
the preliminary financial statements, Seceda has expressed concern over
inventory shortages, and she has asked Selig to determine whether an
abnormal amount of theft and breakage has occurred. The accounting
records of Becker Department Stores contain the following amounts on
November 30, 2017, the end of the fiscal year. (a)Describe the
circumstances under which the retail inventory method would be applied
and the advantages of using the retail inventory method (b) Assuming
that prices have been stable, calculate the value, at cost, of Becker
Department Stores' ending inventory using the last-in, first-out (LIFO)
retail method. Be sure to furnish supporting calculations. (c) Estimate
the amount of shortage, at retail, that has occurred at Becker Department
Stores during the year ended November 30, 2017. (d) Complications in
the retail method can be caused by such items as (1) freight-in costs, (2)
purchase returns and allowances, (3) sales returns and allowances, and

(4) employee discounts. Explain how each of these four special items is
handled in the retail inventory method.
==============================================
ACC 422 Week 3 Wileyplus BE 10-10, Ex 10-3, Ex 10-
13, Ex 11-6 Ex 11-15, Ex 11-24, Ex 12-1, Ex 12-4, Ex
12-14 (with Excel File)
www.acc422.com
values Complete the following assignments in WileyPLUS: • Brief
Exercise 10-10 • Exercise 10-3 • Exercise 10-13 • Exercise 11-6 •
Exercise 11-15 • Exercise 11-15 (Essay) • Exercise 11-24 • Exercise 12-
1 • Exercise 12-4 • Exercise 12-14 (Part Level Submission) Brief
Exercise 10-10 Larkspur Company traded a used welding machine (cost
$10,620, accumulated depreciation $3,540) for office equipment with an
estimated fair value of $5,900. Larkspur also paid $3,540 cash in the
transaction. Prepare the journal entry to record the exchange. (The
exchange has commercial substance.) Exercise 10-3 Whispering
Corporation operates a retail computer store. To improve delivery
services to customers, the company purchases four new trucks on April
1, 2017. The terms of acquisition for each truck are described below. 1.
Truck #1 has a list price of $31,350 and is acquired for a cash payment
of $29,051. 2. Truck #2 has a list price of $33,440 and is acquired for a

down payment of $4,180 cash and a zero-interest-bearing note with a
face amount of $29,260. The note is due April 1, 2018. Whispering
would normally have to pay interest at a rate of 9% for such a
borrowing, and the dealership has an incremental borrowing rate of 8%.
3. Truck #3 has a list price of $33,440. It is acquired in exchange for a
computer system that Whispering carries in inventory. The computer
system cost $25,080 and is normally sold by Whispering for $31,768.
Whispering uses a perpetual inventory system. 4. Truck #4 has a list
price of $29,260. It is acquired in exchange for 1,030 shares of common
stock in Whispering Corporation. The stock has a par value per share of
$10 and a market price of $13 per share. Prepare the appropriate journal
entries for the above transactions for Whispering Corporation. Exercise
10-13 Presented below is information related to Pronghorn Company. 1.
On July 6, Pronghorn Company acquired the plant assets of Doonesbury
Company, which had discontinued operations. The appraised value of
the property is: Land $419,000 Buildings 1,257,000 Equipment 838,000
Total $2,514,000 Pronghorn Company gave 12,500 shares of its $100
par value common stock in exchange. The stock had a market price of
$205 per share on the date of the purchase of the property. 2. Pronghorn
Company expended the following amounts in cash between July 6 and
December 15, the date when it first occupied the building. (Prepare
consolidated entry for all transactions below.) Repairs to building
$114,890 Construction of bases for equipment to be installed later
141,980 Driveways and parking lots 124,400 Remodeling of office
space in building, including new partitions and walls 147,440 Special
assessment by city on land 17,540 3. On December 20, the company
paid cash for equipment, $305,900, subject to a 2% cash discount, and
freight on equipment of $10,100. Exercise 11-6 Sage Company
purchased equipment for $231,080 on October 1, 2017. It is estimated
that the equipment will have a useful life of 8 years and a salvage value

of $13,080. Estimated production is 40,000 units and estimated working
hours are 20,300. During 2017, Sage uses the equipment for 520 hours
and the equipment produces 1,000 units. Compute depreciation expense
under each of the following methods. Sage is on a calendar-year basis
ending December 31. Exercise 11-15 Compute the depreciation charge
on this equipment for 2012, for 2019, and the total charge for the period
from 2013 to 2018, inclusive, under each of the six following
assumptions with respect to partial periods. Your answer has been saved
and sent to the instructor. See Gradebook for score details. On March 10,
2019, Lost World Company sells equipment that it purchased for
$192,000 on August 20, 2012. It was originally estimated that the
equipment would have a life of 12 years and a salvage value of $16,800
at the end of that time, and depreciation has been computed on that
basis. The company uses the straightline method of depreciation.
Following are the assumptions with respect to partial periods: (1)
Depreciation is computed for the exact period of time during which the
asset is owned. (Use 365 days for the base and record depreciation
through March 9, 2019.) (2) Depreciation is computed for the full year
on the January 1 balance in the asset account. (3) Depreciation is
computed for the full year on the December 31 balance in the asset
account. (4) Depreciation for one-half year is charged on plant assets
acquired or disposed of during the year. (5) Depreciation is computed on
additions from the beginning of the month following acquisition and on
disposals to the beginning of the month following disposal. (6)
Depreciation is computed for a full period on all assets in use for over
one-half year, and no depreciation is charged on assets in use for less
than one-half year. (Use 365 days for base.) Briefly evaluate the
methods above, considering them from the point of view of basic
accounting theory as well as simplicity of application. Exercise 11-24
The 2014 Annual Report of Tootsie Roll Industries contains the

following information. (in millions) December 31, 2014 December 31,
2013 Total assets $910.4 $888.4 Total liabilities 219.3 208.1 Net sales
539.9 539.6 Net income 63.2 60.8 Compute the following ratios for
Tootsie Roll for 2014. Exercise 12-4 Presented below is selected
information for Cullumber Company. Answer the questions asked about
each of the factual situations. 1. Cullumber purchased a patent from
Vania Co. for $1,230,000 on January 1, 2015. The patent is being
amortized over its remaining legal life of 10 years, expiring on January
1, 2025. During 2017, Cullumber determined that the economic benefits
of the patent would not last longer than 6 years from the date of
acquisition. What amount should be reported in the balance sheet for the
patent, net of accumulated amortization, at December 31, 2017? 2.
Cullumber bought a franchise from Alexander Co. on January 1, 2016,
for $365,000. The carrying amount of the franchise on Alexander’s
books on January 1, 2016, was $515,000. The franchise agreement had
an estimated useful life of 30 years. Because Cullumber must enter a
competitive bidding at the end of 2018, it is unlikely that the franchise
will be retained beyond 2025. What amount should be amortized for the
year ended December 31, 2017? 3. On January 1, 2017, Cullumber
incurred organization costs of $282,500. What amount of organization
expense should be reported in 2017? 4. Cullumber purchased the license
for distribution of a popular consumer product on January 1, 2017, for
$153,000. It is expected that this product will generate cash flows for an
indefinite period of time. The license has an initial term of 5 years but by
paying a nominal fee, Cullumber can renew the license indefinitely for
successive 5-year terms. What amount should be amortized for the year
ended December 31, 2017? Exercise 12-14 (Part Level Submission)
Presented below is net asset information related to the Skysong Division
of Santana, Inc. The purpose of the Skysong Division is to develop a
nuclear-powered aircraft. If successful, traveling delays associated with

refueling could be substantially reduced. Many other benefits would also
occur. To date, management has not had much success and is deciding
whether a write-down at this time is appropriate. Management estimated
its future net cash flows from the project to be $425 million.
Management has also received an offer to purchase the division for $330
million. All identifiable assets’ and liabilities’ book and fair value
amounts are the same.
==============================================
ACC 422 Week 4 DQ 1
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What are the criteria for classifying an item as a current liability?
What are some examples of current liabilities?
Why is it important to classify a portion of long-term debt on a yearly
basis as a current liability?
What is the implication of misclassifying a liability as current or long-
term?
==============================================

ACC 422 Week 4 DQ 2
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What is a contingency?
Why are contingencies important to users of financial statements?
What are the criteria for recording contingencies?
Should companies record a liability for threatened litigation? Explain
why or why not.
==============================================
ACC 422 Week 4 DQ 3
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What is a bond? What are some features of a bond? How do you value
bonds? What factors can affect that value?
==============================================

ACC 422 Week 4 Team Assignment Financial
Scavenger Hunt #3 (Nordstrom)
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Review the financial statements, including any notes and supplemental
information, and answer the following questions. Indicate where you
found the answer to the questions. If calculations are required, show
your work. Fixed Assets and Intangibles 1. How are plant and
equipment recorded? 2. How are leasehold improvements accounted
for? 3. How are assets depreciated? 4. How is impairment
determined and were there any impairments reported? 5. Were any
new stores added and if yes, where. 6. Were any stores or facilities
closed and if yes, where. 7. How is goodwill accounted for? Was the
carrying value of goodwill written down in the past two years? 8. Have
any recent pronouncements affected the accounting for property, plant,
and equipment and/ or intangibles?
==============================================
ACC 422 Week 4 Team Assignment Problem 10-4,
Problem 10-6, CA 11-5, Problem 12-2

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Complete the following individually and discuss your individual
answers as a team: • Problem 10-4, p. 543 • Problem 10-6, p. 544
• CA 11-5, p. 597 • Problem 12-2, p. 644 After discussing your
answers, compile each into a team response. Click the Assignment Files
tab to submit your assignment. Problem 10-4- Problem 10-4, p. 543 P10-
4 (LO1,4,6) GROUPWORK (Dispositions, Including Condemnation,
Demolition, and Trade-In) Presented below is a schedule of property
dispositions for Hollerith Co. Schedule of Property Dispositions Cost
Accumulated Depreciation Cash Proceeds Fair Value Nature of
Disposition Land $40,000 -- $31,000 $31,000
Condemnation Building 15,000 -- 3,600 --
Demolition Warehouse 70,000 $16,000 74,000 74,000
Destruction by fire Machine 8,000 2,800 900
7,200 Trade-in Furniture 10,000 7,850 -- 3,100
Contribution Automobile 9,000 3,460 2,960
2,960 Sale The following additional information is available. Land:
On February 15, a condemnation award was received as consideration
for unimproved land held primarily as an investment, and on March 31,
another parcel of unimproved land to be held as an investment was
purchased at a cost of $35,000. Building: On April 2, land and building
were purchased at a total cost of $75,000, of which 20% was allocated to
the building on the corporate books. The real estate was acquired with
the intention of demolishing the building, and this was accomplished
during the month of November. Cash proceeds received in November
represent the net proceeds from demolition of the building. Warehouse:
On June 30, the warehouse was destroyed by fire. The warehouse was
purchased January 2, 2014, and had depreciated $16,000. On December
27, the insurance proceeds and other funds were used to purchase a

replacement warehouse at a cost of $90,000. Machine: On December 26,
the machine was exchanged for another machine having a fair value of
$6,300 and cash of $900 was received. (The exchange lacks commercial
substance.) Furniture: On August 15, furniture was contributed to a
qualified charitable organization. No other contributions were made or
pledged during the year. Automobile: On November 3, the automobile
was sold to Jared Winger, a stockholder. Instructions P10-6 (LO1,3)
(Interest During Construction) Grieg Landscaping began construction of
a new plant on December 1, 2017. On this date, the company purchased
a parcel of land for $139,000 in cash. In addition, it paid $2,000 in
surveying costs and $4,000 for a title insurance policy. An old dwelling
on the premises was demolished at a cost of $3,000, with $1,000 being
received from the sale of materials. Architectural plans were also
formalized on December 1, 2017, when the architect was paid $30,000.
The necessary building permits costing $3,000 were obtained from the
city and paid for on December 1 as well. The excavation work began
during the first week in December with payments made to the contractor
in 2018 as follows. CA 11-5 Jerry Prior, Beeler Corporation’s controller,
is concerned that net income may be lower this year. He is afraid upper-
level management might recommend cost reductions by laying off
accounting staff, including him. Prior knows that depreciation is a major
expense for Beeler. The company currently uses the double-declining-
balance method for both financial reporting and tax purposes, and he’s
thinking of selling equipment that, given its age, is primarily used when
there are periodic spikes in demand. The equipment has a carrying value
of $2,000,000 and a fair value of $2,180,000. The gain on the sale would
be reported in the income statement. He doesn’t want to highlight this
method of increasing income. He thinks, ―Why don’t I increase the
estimated useful lives and the salvage values? That will decrease
depreciation expense and require less extensive disclosure, since the

changes are accounted for prospectively. I may be able to save my job
and those of my staff.‖ Instructions: a. Who are the stakeholders in this
situation? b. What are the ethical issues involved? c. What
should Prior do? Problem 12-2 P12-2 (LO1,2,4,5) EXCEL
(Accounting for Patents) Fields Laboratories holds a valuable patent
(No. 758-6002-1A) on a precipitator that prevents certain types of air
pollution. Fields does not manufacture or sell the products and processes
it develops. Instead, it conducts research and develops products and
processes which it patents, and then assigns the patents to manufacturers
on a royalty basis. Occasionally it sells a patent. The history of Fields
patent number 758-6002-1A is as follows. Compute the carrying value
of patent No. 758-6002-1A on each of the following dates: (a)December
31, 2011. (b)December 31, 2015.
==============================================
ACC 422 Week 4 WileyPlus Ex 13-2, Ex 13-7, Ex 13-
16, Ex 14-4, Ex 14-6, Ex 14-9, Problem 14-2 (With
Excel File)
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values Complete the following assignments in WileyPLUS: • Exercise
13-2 (Part Level Submission) • Exercise 13-7 (Part Level Submission)
• Exercise 13-16 •Exercise 14-4 • Exercise 14-6 • Exercise 14-9

(Part Level Submission) • Problem 14-2 (Part Level submission)
Exercise 13-2 (Part Level Submission) The following are selected 2017
transactions of Riverbed Corporation. Sept. 1 Purchased inventory
from Encino Company on account for $43,600. Riverbed records
purchases gross and uses a periodic inventory system. Oct. 1 Issued a
$43,600, 12-month, 8% note to Encino in payment of account. Oct. 1
Borrowed $43,600 from the Shore Bank by signing a 12-month,
zero-interest-bearing $48,600 note. Prepare journal entries for the
selected transactions above. Prepare adjusting entries at December 31.
Compute the total net liability to be reported on the December 31
balance sheet for: Exercise 13-7 (Part Level Submission) Pharoah
Hardware Company’s payroll for November 2017 is summarized below.
At this point in the year, some employees have already received wages
in excess of those to which payroll taxes apply. Assume that the state
unemployment tax is 2.5%. The FICA rate is 7.65% on an employee’s
wages to $118,500 and 1.45% in excess of $118,500. Of the $194,300
wages subject to FICA tax, $21,300 of the sales wages is in excess of
$118,500. Federal unemployment tax rate is 0.8% after credits. Income
tax withheld amounts to $16,800 for factory, $7,700 for sales, and
$6,800 for administrative. Exercise 13-16 Presented below is a list of
possible transactions. Analyze the effect of the 18 transactions on the
financial statement categories indicated. 1. Purchased inventory for
$80,000 on account (assume perpetual system is used). 2. Issued an
$80,000 note payable in payment on account (see item 1 above). 3.
Recorded accrued interest on the note from item 2 above. 4.
Borrowed $100,000 from the bank by signing a 6-month,
$112,000, zero-interest-bearing note. 5. Recognized 4 months’
interest expense on the note from item 4 above. 6. Recorded cash
sales of $75,260, which includes 6% sales tax. 7. Recorded wage
expense of $35,000. The cash paid was $25,000; the difference was due

to various amounts withheld. 8. Recorded employer’s payroll taxes.
9. Accrued accumulated vacation pay. 10. Recorded an
asset retirement obligation. 11. Recorded bonuses due to employees.
12. Recorded a contingent loss on a lawsuit that the company
will probably lose. 13. Accrued warranty expense (assume expense
warranty approach). 14. Paid warranty costs that were accrued in
item 13 above. 15. Recorded sales of product and related service-type
warranties.16. Paid warranty costs under contracts from item 15
above. 17. Recognized warranty revenue (see item 15 above).
18. Recorded estimated liability for premium claims outstanding.
Exercise 14-4 Ivanhoe Company issued $444,000 of 10%, 20-year bonds
on January 1, 2017, at 104. Interest is payable semiannually on July 1
and January 1. Ivanhoe Company uses the straight-line method of
amortization for bond premium or discount. Prepare the journal entries
to record the following. (If no entry is required, select "No Entry" for the
account titles and enter 0 for the amounts. Credit account titles are
automatically indented when amount is entered. Do not indent
manually.) (a) The issuance of the bonds. (b) The payment of interest
and the related amortization on July 1, 2017. (c) The accrual of interest
and the related amortization on December 31, 2017. Exercise 14-6
Culver Company sells 9% bonds having a maturity value of $2,050,000
for $1,828,314. The bonds are dated January 1, 2017, and mature
January 1, 2022. Interest is payable annually on January 1. Prepare the
journal entries to record the following transactions. (Round answer to 0
decimal Exercise 14-9 (Part Level Submission) On June 30, 2017,
Monty Company issued $3,200,000 face value of 13%, 20-year bonds at
$3,440,734, a yield of 12%. Monty uses the effective-interest method to
amortize bond premium or discount. The bonds pay semiannual interest
on June 30 and December 31. (Round answer to 0 decimal places, e.g.
38,548. If no entry is required, select "No Entry" for the account titles

and enter 0 for the amounts. Credit account titles are automatically
indented when amount is entered. Do not indent manually.) (1) The
issuance of the bonds on June 30, 2017. (2) The payment of interest and
the amortization of the premium on December 31, 2017. (3) The
payment of interest and the amortization of the premium on June 30,
2018. (4) The payment of interest and the amortization of the premium
on December 31, 2018. Set up a schedule of interest expense and
discount amortization under the straight-line method. (b) Show the
proper balance sheet presentation for the liability for bonds payable on
the December 31, 2018, balance sheet. (1) What amount of interest
expense is reported for 2018? (Round answer to 0 decimal places, e.g.
38,548.) Interest expense reported for 2018 (2) Will the bond interest
expense reported in 2018 be the same as, greater than, or less than the
amount that would be reported if the straight-line method of
amortization were used? The bond interest expense reported in 2018 will
be (3) Determine the total cost of borrowing over the life of the bond.
(Round answer to 0 decimal places, e.g. 38,548.) Total cost of
borrowing over the life of the bond (4) Will the total bond interest
expense for the life of the bond be greater than, the same as, or less than
the total interest expense if the straight-line method of amortization were
used? The total bond interest expense for the life of the bond will be
Problem 14-2 (Part Level Submission) Swifty Co. is building a new
hockey arena at a cost of $2,310,000. It received a downpayment of
$490,000 from local businesses to support the project, and now needs to
borrow $1,820,000 to complete the project. It therefore decides to issue
$1,820,000 of 12%, 10-year bonds. These bonds were issued on January
1, 2016, and pay interest annually on each January 1. The bonds yield
11%. (a) Prepare the journal entry to record the issuance of the bonds on
January 1, 2016.
==============================================

ACC 422 Week 5 DQ 1
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What are the differences between a direct-financing and a sales-type
lease for a lessor?
Why would a lessor provide direct-financing to a lessee?
What types of organizations provide direct-financing leases?
==============================================
ACC 422 Week 5 DQ 2
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What are the criteria for classifying a lease as operating or capital?
Why is there a difference between the two?
What are the implications of an operating lease versus a capital lease on
an entity’s financial statements?

==============================================
ACC 422 Week 5 DQ 3
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What is residual value?
What is the implication to the lessee if the residual value is guaranteed
or unguaranteed?
What is the implication to the lessor?
==============================================
ACC 422 Week 5 DQ 4
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Week 5 – DQ 4

What are the advantages of operating and capital leases? What are the
disadvantages?
Why would a company pick one over the other?
==============================================
ACC 422 Week 5 Learning Team Problem
Presentation
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Collaborate as a team to provide written responses to a facilitator-
assigned problem.
Prepare a 5- to 10-minute oral presentation accompanied by a 7- to 9-
slide Microsoft® PowerPoint® presentation illustrating your team’s
solution to the assigned problem.
Note. Each week, the facilitator assigns one Learning Team a problem to
present that the team must complete during the succeeding Learning
Team Meeting.
==============================================

ACC 422 Week 5 Signature Assignment Presentation
(Procter and Gamble)
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Create a 5- to 10-slide presentation and use the same publicly traded
company selected in Week 2 to address the following: • Be sure to use
the most recent SEC 10-k or Annual report. • Identify the
Company's current liabilities for the past two years? • Compare the
current portion of long-term debt for the past two years? • Discuss
some of the items found in the current liability section. • Describe
any lease obligations the Company disclosed. • Explain what
contingency liabilities are disclosed in the financial statements? •
Recommend, from the perspective of a bank, whether or not you
would support this company. • Compute the Debt ratio and Debt to
Equity ratio. Click the Assignment Files tab to submit your assignment.
==============================================
ACC 422 Week 5 Team Assignment Problem 13-7, 13-
11, CA 13-3, CA 14-1, CA 14-4, CA 21-4
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Complete the following individually and discuss your individual
answers as a team: • Problem 13-7, p. 700 • Problem 13-11, p. 701
• CA 13-3, p. 703 • CA 14-1, p. 763 • CA 14-4, p. 765 •
CA 21-4, p. 1252 After discussing your answers, compile each into
a team response. Click the Assignment Files tab to submit your
assignment. P13-7 (LO3) (Warranties) Alvarado Company sells a
machine for $7,400 with a 12-month warranty agreement that requires
the company to replace all defective parts and to provide the repair labor
at no cost to the customers. With sales being made evenly throughout the
year, the company sells 600 machines in 2017 (warranty expense is
incurred half in 2017 and half in 2018). As a result of product testing,
the company estimates that the warranty cost is $390 per machine ($170
parts and $220 labor). Instructions Assuming that actual warranty costs
are incurred exactly as estimated, what journal entries would be made
relative to the following facts? (a)Sale of machinery and warranty
expense incurred in 2017. (b)Warranty accrual on December 31, 2017.
(c)Warranty costs incurred in 2018. (d)What amount, if any, is disclosed
in the balance sheet as a liability for future warranty costs as of
December 31, 2017? P13-11 (LO3) WRITING (Loss Contingencies:
Entries and Essays) Polska Corporation, in preparation of its December
31, 2017, financial statements, is attempting to determine the proper
accounting treatment for each of the following situations. 1. As a result
of uninsured accidents during the year, personal injury suits for
$350,000 and $60,000 have been filed against the company. It is the
judgment of Polska's legal counsel that an unfavorable outcome is
unlikely in the $60,000 case but that an unfavorable verdict
approximating $250,000 will probably result in the $350,000 case.
2.Polska owns a subsidiary in a foreign country that has a book value of
$5,725,000 and an estimated fair value of $9,500,000. The foreign
government has communicated to Polska its intention to expropriate the

assets and business of all foreign investors. On the basis of settlements
other firms have received from this same country, Polska expects to
receive 40% of the fair value of its properties as final settlement.
3.Polska's chemical product division consisting of five plants is
uninsurable because of the special risk of injury to employees and losses
due to fire and explosion. The year 2017 is considered one of the safest
(luckiest) in the division's history because no loss due to injury or
casualty was suffered. Having suffered an average of three casualties a
year during the rest of the past decade (ranging from $60,000 to
$700,000), management is certain that next year the company will
probably not be so fortunate. Instructions (a)Prepare the journal entries
that should be recorded as of December 31, 2017, to recognize each of
the situations above. (b)Indicate what should be reported relative to each
situation in the financial statements and accompanying notes. Explain
why. CA13-3 WRITING (Refinancing of Short-Term Debt)
DumarsCorporation reports in the current liability section of its balance
sheet at December 31, 2017 (its year-end), short-term obligations of
$15,000,000, which includes the current portion of 12% long-term debt
in the amount of $10,000,000 (matures in March 2018). Management
has stated its intention to refinance the 12% debt whereby no portion of
it will mature during 2018. The date of issuance of the financial
statements is March 25, 2018. (a)Is management's intent enough to
support long-term classification of the obligation in this situation?
(b)Assume that Dumars Corporation issues $13,000,000 of 10-year
debentures to the public in January 2018 and that management intends to
use the proceeds to liquidate the $10,000,000 debt maturing in March
2018. Furthermore, assume that the debt maturing in March 2018 is paid
from these proceeds prior to the issuance of the financial statements.
Will this have any impact on the balance sheet classification at
December 31, 2017? Explain your answer. (c)Assume that Dumars

Corporation issues common stock to the public in January and that
management intends to entirely liquidate the $10,000,000 debt maturing
in March 2018 with the proceeds of this equity securities issue. In light
of these events, should the $10,000,000 debt maturing in March 2018 be
included in current liabilities at December 31, 2017? CA14-1 (Bond
Theory: Balance Sheet Presentations, Interest Rate, Premium) On
January 1, 2017, Nichols Company issued for $1,085,800 its 20-year,
11% bonds that have a maturity value of $1,000,000 and pay interest
semiannually on January 1 and July 1. The following are three
presentations of the long-term liability section of the balance sheet that
might be used for these bonds at the issue date. Instructions (a)Discuss
the conceptual merit(s) of each of the date-of-issue balance sheet
presentations shown above for these bonds. (b)Explain why investors
would pay $1,085,800 for bonds that have a maturity value of only
$1,000,000. (c)Assuming that a discount rate is needed to compute the
carrying value of the obligations arising from a bond issue at any date
during the life of the bonds, discuss the conceptual merit(s) of using for
this purpose: CA14-4 WRITING (Off-Balance-Sheet Financing) Matt
Ryan Corporation is interested in building its own soda can
manufacturing plant adjacent to its existing plant in Partyville, Kansas.
The objective would be to ensure a steady supply of cans at a stable
price and to minimize transportation costs. However, the company has
been experiencing some financial problems and has been reluctant to
borrow any additional cash to fund the project. The company is not
concerned with the cash flow problems of making payments, but rather
with the impact of adding additional long-term debt to its balance sheet.
The president of Ryan, Andy Newlin, approached the president of the
Aluminum Can Company (ACC), its major supplier, to see if some
agreement could be reached. ACC was anxious to work out an
arrangement, since it seemed inevitable that Ryan would begin its own

can production. The Aluminum Can Company could not afford to lose
the account. After some discussion, a two-part plan was worked out.
First, ACC was to construct the plant on Ryan’s land adjacent to the
existing plant. Second, Ryan would sign a 20-year purchase agreement.
Under the purchase agreement, Ryan would express its intention to buy
all of its cans from ACC, paying a unit price which at normal capacity
would cover labor and material, an operating management fee, and the
debt service requirements on the plant. The expected unit price, if
transportation costs are taken into consideration, is lower than current
market. If Ryan did not take enough production in any one year and if
the excess cans could not be sold at a high enough prices on the open
market, Ryan agrees to make up any cash shortfall so that ACC could
make the payments on its debt. The bank will be willing to make a 20-
year loan for the plant, taking the plant and the purchase agreement as
collateral. At the end of 20 years, the plant is to become the property of
Ryan. Instructions (a)What are project financing arrangements using
special-purpose entities? (b)What are take-or-pay contracts? (c)Should
Ryan record the plant as an asset together with the related obligation?
(d)If not, should Ryan record an asset relating to the future
commitment? (e)What is meant by off-balance-sheet financing? CA21-4
(Comparison of Different Types of Accounting by Lessee and Lessor)
Part 1: Capital leases and operating leases are the two classifications of
leases described in FASB pronouncements from the standpoint of the
lessee. Instructions (a)Describe how a capital lease would be accounted
for by the lessee both at the inception of the lease and during the first
year of the lease, assuming the lease transfers ownership of the property
to the lessee by the end of the lease (b)Describe how an operating lease
would be accounted for by the lessee both at the inception of the lease
and during the first year of the lease, assuming equal monthly payments
are made by the lessee at the beginning of each month of the lease.

Describe the change in accounting, if any, when rental payments are not
made on a straight-line basis. Part 2: Sales-type leases and direct-
financing leases are two of the classifications of leases described in
FASB pronouncements from the standpoint of the lessor. Instructions
Compare and contrast a sales-type lease with a direct-financing lease as
follows. (a)Lease receivable. (b)Recognition of interest revenue.
(c)Manufacturer's or dealer's profit.
==============================================

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